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Beginnings of A Successful Strategy?
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Beginnings of A Successful Strategy?

  #1 (permalink)
Elite Member
Toronto, Canada
 
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stefan416's Avatar
 
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Beginnings of A Successful Strategy?

Hey everyone,

So I've been a member here for quite a while now soaking in all the information that I can. I, like most people I suspect, struggle to find our personal trading technique and probably dont know it when success is right around the corner. My question is, how does one know when their strategy, that they are paper trading, will be successful. Mostly Im referring to trading metrics in backtesting since that seems to be the quickest way to root out a possible candidate for further review. I tried to find posts on acceptable expectancy, draw downs etc but I dont think I have found the answer Im looking for.

So basically, I was wondering if this wonderful group of traders would look at these to excel journals Ive used to back test (apr - august 2012, and Feb 2013 so far) and tell me what they think of the strategy as it has performed thus far! Between the two I have racked up about 600 "trades" or so I think that should be a reasonable sample set for the time being in these market conditions

Here's some basic info on the strategy. Trades only the ES so far, both trend and mean reversion as well as the stop being tied to an average of intraday weekly and monthly atr value.

Would greatly appreciate some feedback!

P.S. I could only upload them as a zipped archive. They are both using the journal found here on futures.io (formerly BMT).

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Register to download File Type: zip ES strategy journals.zip (4.74 MB, 38 views)
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  #2 (permalink)
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  #3 (permalink)
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stefan416 View Post
Hey everyone,

So I've been a member here for quite a while now soaking in all the information that I can. I, like most people I suspect, struggle to find our personal trading technique and probably dont know it when success is right around the corner. My question is, how does one know when their strategy, that they are paper trading, will be successful. Mostly Im referring to trading metrics in backtesting since that seems to be the quickest way to root out a possible candidate for further review. I tried to find posts on acceptable expectancy, draw downs etc but I dont think I have found the answer Im looking for.

so i'm not interested in seeing your system etc. but i am interested in the above questions and feel you will benefit from my answers if your receptive. ask what you want i am doing a discussion on LinkedIn right now in the

Automated Systems Strategies group

with the heading

Back Testing - Optimization - How to Orchestrate

Wish to open a discussion on the ill fated and well orchestrated ways to back test trading models. To successfully gain an idea which might provide and edge and then translate it into code is daunting enough. The ability to properly back test is very elusive let alone produce an outcome which is replicable in real trading is a near impossible feat.

This continual failure is non prejudice it will destroy the wealthy and poor, the idiot and the savant, the young and old all alike. There are no qualifications which mankind has labeled or obtained which will secure the right to succeed in developing a successful trading system. What is your contribution to avoiding failures and pitfalls, your confession. Also it would be interesting to share what works and why. ~Mark

but will be glad to freely answer your questions as well here on this delightful forum.

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  #4 (permalink)
Market Wizard
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markbrown View Post
so i'm not interested in seeing your system etc. but i am interested in the above questions and feel you will benefit from my answers if your receptive. ask what you want i am doing a discussion on LinkedIn right now in the

Automated Systems Strategies group

with the heading

Back Testing - Optimization - How to Orchestrate

Wish to open a discussion on the ill fated and well orchestrated ways to back test trading models. To successfully gain an idea which might provide and edge and then translate it into code is daunting enough. The ability to properly back test is very elusive let alone produce an outcome which is replicable in real trading is a near impossible feat.

This continual failure is non prejudice it will destroy the wealthy and poor, the idiot and the savant, the young and old all alike. There are no qualifications which mankind has labeled or obtained which will secure the right to succeed in developing a successful trading system. What is your contribution to avoiding failures and pitfalls, your confession. Also it would be interesting to share what works and why. ~Mark

but will be glad to freely answer your questions as well here on this delightful forum.


Sounds interesting Mark. But why not have the discussion here?

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #5 (permalink)
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kevinkdog View Post
Sounds interesting Mark. But why not have the discussion here?


and i said - but will be glad to freely answer your questions as well here on this delightful forum. and so

Back Testing - Optimization - How to Orchestrate

Wish to open a discussion on the ill fated and well orchestrated ways to back test trading models. To successfully gain an idea which might provide and edge and then translate it into code is daunting enough. The ability to properly back test is very elusive let alone produce an outcome which is replicable in real trading is a near impossible feat.

This continual failure is non prejudice it will destroy the wealthy and poor, the idiot and the savant, the young and old all alike. There are no qualifications which mankind has labeled or obtained which will secure the right to succeed in developing a successful trading system. What is your contribution to avoiding failures and pitfalls, your confession. Also it would be intresting to share what works and why.

I will start off the conversation by saying that for many years of great promise and greater failure. I looked in the mirror and asked myself if I had wasted my time and money chasing a myth which was only profitable to vendors who perpetuated the dream.

More on my personal experiences. After much failure in the area of back testing. I gave up and went to work for a person who provided the resources that I simply did not have. Armed with a well funded operation at my disposal, there was no excuse now not to figure this out.

I was in a position where we had to reverse engineer a system to meet the expected criteria of our investors. As if it wasn't hard enough to build a successful model, we had to tailor make one to fit an expected risk profile. This set me back probably ten years, but taught me things I would have otherwise never discovered.

===

Rule 1.) As much as I try and mechanicalize the process of optimizing models, there is always a bit of artwork which seems to be necessary. Example typically the most profitable parameters will be chosen by novice builders. I think this is because if they don't pick the absolute best parameter the model will fall apart. I often like to see a wide variety of parameters that the model can be set at which provide decent profits.

Rule 2.) I mostly like a decent profit factor and a good size average trade net profit. However I find it almost impossible to even get that far looking at the stats of the model if the net profit is not at least fifty percent or greater than the gross profit. I have seen for example models that make one million gross but only net three-hundred thousand. I would rather see the net profit at five-hundred thousand or greater. This tell me the model has a chance in the real world, and this criteria eliminates many models.

Rule 3.) This is where there is a clear fork in the road between what makes money and what people want. People want to make money but take no risk doing so. Less risk models make less money and there is a hidden risk of not making enough money fast enough to outrun ever present inflation.

Since I have learned to embrace risk rather than hide from it. I set out some criteria that must be met for clients trading to ease their fears. This is where the real challenge comes to model around perceived fears. The greatest fear that should be heeded is that of not making money.

So rule three is to identify who this model is for and ask what do they expect out of it. It is not good enough any longer to just have a profitable model. That's yesterday, now there are very stringent and sophisticated ways to dissect a model. You need to be prepared for long exposure under the microscope. So be truthful with yourself and know that you have something that is real and can withstand peer review.

Rule 4.) I always test using single lot contracts unless it's something of very low value and then I use 10 or multiples of. This allows me to better track actual system performance rather than rely on some leveraging scheme to make profits. So what I am saying is to trade the minimum amount of contracts you can during testing and keep the position size always the same for base testing. Then after you have a solid model add in the leveraging schemes else you may be fooled by randomness.

Mark Brown

PS If there is any interest please ask questions.. I will continue


Last edited by markbrown; March 9th, 2013 at 10:14 AM.
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  #6 (permalink)
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ok so today i had time and i looked at your zip file and what i saw was what i expected but i will say the spreadsheet is kinda nice wasn't expecting that. that model is no holy grail so post the logic here and let's mess with it and from it you can possibly eventually make one worthy of non disclosure. but for now you need help and the doctor needs you undressed if your to be examined. else you can continue struggling to cure yourself, lol.

1.) your drawdown periods are too long.
2.) your percentage of wins is to high a direct results of your drawdowns (have a feeling whats going on)
3.) related to # 2 tell me about the stops and position directions.
4.) expect to burn thru a few thousand models each the holy grail after the last holy grail.
5.) the sooner this exercise is over the sooner you will discover your final fate, get crackin.
6.) suggestion disclose, disclose, disclose at least till you start to see someone selling your idea.

mark brown

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  #7 (permalink)
Trading for Fun
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I'm not going to read your zip file, I'm just going to put in some general comments


stefan416 View Post
and probably dont know it when success is right around the corner.

You can get a good idea of this by doing proper backtesting through a wide variety of market conditions. You need to make sure your testing periods include outlier events. The more diverse and antagonistic the markets you put your strategy through, the better an idea you will have of whether it's going to work over the long run.

You need to look at your drawdown, how long the strategy is in drawdown, what percentage of your capital suffers during those periods, and your net profit. Basically, if you can achieve something like 20% annual net return with 10% drawdown, that's quite good, so realistically you're probably looking at somewhat worse than those figures. My attitude is that as long as you never get a margin call, then you're okay.

Everyone's strategy is going to have different numbers. Just make sure of two things:
  • you're profitable - at least something better than interest rates
  • you don't incur margin calls

And make sure you're always prepared for worse-case, unexpected events.


Quoting 
Between the two I have racked up about 600 "trades" or so I think that should be a reasonable sample set for the time being in these market conditions

This entirely depends. It's not sufficient if you're looking at a specific market condition only, like a limited time frame, or if your strategy is based on something arbitrary like trading ranges or volatility. People who make a living designing trading systems will tell you they are never satisfied with the amount of data they can look at.


Quoting 
Here's some basic info on the strategy. Trades only the ES so far, both trend and mean reversion as well as the stop being tied to an average of intraday weekly and monthly atr value.

Would greatly appreciate some feedback!

General things:
  • don't curve-fit
  • test over lots of markets, lots of time periods

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