Backtester Logic (Part 3)

I included a code snippet in Part 2 to explain how the wait_until_next_day flag is used in the early stages of the backtesting program. I mentioned that once the short option is addressed (either via finding long/short branches or updating long/short branches), the program should skip ahead in the data file to the next historical date.* This begs the question as to where in the program current_date gets assigned. Today I will take a closer look to better understand this.

The find_long branch (see control_flag here) assigns a value to trade_date. Do I need this in addition to current_date? I created trade_date to mark trade entry dates and on trade entry dates, the two are indeed identical. I could possibly use just current_date, eliminate trade_date, and add some lines to do right here with the former what I ultimately do with the latter. This is worthy of consideration and would eliminate what may be problematic below.

The find_short branch has two conditional blocks—the first of which checks to see if historical date differs from trade_date. This could only occur if one leg of the spread is found, which implies a flaw in the data file. In this case, trade_date is added to missing_s_s_p_dict, control_flag (branch) is changed to find_long, and a continue statement returns the program to the top of the loop where next iteration (row of data file) begins. The process of finding a new trade commences immediately because wait_until_next_day remains False.

The other conditional block in the find_short branch includes a check to make sure historical date equals trade_date. This seems redundant since the first conditional block establishes them to be different. I could probably do one if-elif block instead of two if blocks since the logic surrounding date is mutually exclusive. This may or may not be more efficient, but this second conditional block also has some additional logic designed to locate the short option—additional logic that, as above, could pose a problem if the data file is flawed.

At the end of this second conditional block, wait_until_next_day is set to True but current_date is not assigned. This seems problematic because L66 (see Part 2) will be bypassed, wait_until_next_day will be reset to False, and the flag will basically fail as rows with the same historical date will be subsequently evaluated rather than skipped. Remember, for the sake of efficiency, every trading day should include either finding or updating: not both. How much does this matter?

I will continue next time.

*—Historical date is a column of the data file corresponding to a particular trading day.