Over-optimization and Roll Over Dates | Traders Hideout


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Over-optimization and Roll Over Dates

  #4 (permalink)

North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011

I have not dealt much/any with this but I think your system should first be profitable on the continuous or cash. Once you have a profitable system, you can start to work on more implementation aspects like roll over. You should not see a big edge one way or another because the contracts should be arbitraged. So, if you are seeing a big edge then it might be a problem in your backtesting.

If you've already ruled that out, you might want to look at what is causing potential differences. Potential sources to look at are contango, backwardation, whether the trade is in a loss or win, how many trades are impacted, spread, etc.

Let's say you see that rolling over 2 days is better then 1 day, count the number of trades that are split across settings A and B. If fewer trades are split around one of the settings then that could explain it because there is less slippage. The optimization in this case is unlikely to be meaningful going forward.

As for a general strategy for roll over it might look something like this

A trade already in a position that will likely be closed out before roll over. Ideas: You may be better off not rolling over and incurring the extra slippage. If the trade is profitable, hold until expires. If the trade is negative then close and take a loss.

A trade that needs to be opened and will likely go over the roll over date. Consider opening in the next contract so you do not need to roll it over again.

In general, the optimal strategy will be to measure the risk of trading a product with less liquidity and compare that to the cost of roll over. Go with the contract with less liquidity if the risk cost is less then roll over slippage and transaction cost. Go with more roll overs if the cost of trading the less liquid product is more risky.

... Thinking outloud.. in the case where a trade will go over the roll over date, if the next contract has sufficient liquidity such that you are unlikely to experience greater slippage over the current (or even current*2) then you would execute in the next contract or else in the front.

More thinking...

For entry
1. If trade will not go over roll over, trade in front month.
2. If the trade will go over roll over and the back has sufficient liquidity already then open in the back/nearest/next. Volume > X
3. If next doesn't have sufficient liquidity then open in front.

For exit

1. If trade is already near end of life or unprofitable, consider closing vs rolling it over.
2. If trade is profitable, consider re-entry at better price.


Last edited by tpredictor; August 9th, 2017 at 05:43 PM.
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