backtesting - include profit in trading capital or not? - Traders Hideout | futures.io
futures.io futures trading
 

Go Back   futures.io

> Futures Trading, News, Charts and Platforms > Traders Hideout


backtesting - include profit in trading capital or not?
Started:October 9th, 2016 (08:50 AM) by alko Views / Replies:164 / 6
Last Reply:October 10th, 2016 (03:01 AM) Attachments:0

Welcome to futures.io.

Welcome, Guest!

This forum was established to help traders (especially futures traders) by openly sharing indicators, strategies, methods, trading journals and discussing the psychology of trading.

We are fundamentally different than most other trading forums:
  • We work extremely hard to keep things positive on our forums.
  • We do not tolerate rude behavior, trolling, or vendor advertising in posts.
  • We firmly believe in openness and encourage sharing. The holy grail is within you, it is not something tangible you can download.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.


You'll need to register in order to view the content of the threads and start contributing to our community. It's free and simple, and we will never resell your private information.

-- Big Mike
     

Reply
 
Thread Tools Search this Thread

backtesting - include profit in trading capital or not?

Old October 9th, 2016, 08:50 AM   #1 (permalink)
Trading Apprentice
Moscow, Russia
 
Futures Experience: Intermediate
Platform: MC
Favorite Futures: All
 
Posts: 17 since Aug 2016
Thanks: 4 given, 3 received

backtesting - include profit in trading capital or not?

Hello all,
When performing backtesting constant USD seems that is the right approach, rather than using constant shares/contracts count as price varies. However, is it appropriate to add net profits to the amount of initial capital applied to the strategy or leave it out and use the same initial capital amount through the backtesting? The results can vary substantially depending on the type of a strategy one is testing (profits follow profits or profits follow loss). Any suggestions, references to the books/articles that talk about it are welcomed.

Reply With Quote
     

Old October 9th, 2016, 08:50 AM   #2 (permalink)
Quick Summary
Quick Summary Post

Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.

     

Old October 9th, 2016, 10:23 AM   #3 (permalink)
Market Wizard
London UK
 
Futures Experience: Beginner
Platform: CQG
Favorite Futures: Futures
 
xplorer's Avatar
 
Posts: 1,465 since Sep 2015
Thanks: 2,401 given, 1,825 received
Forum Reputation: Legendary



alko View Post
Hello all,
When performing backtesting constant USD seems that is the right approach, rather than using constant shares/contracts count as price varies. However, is it appropriate to add net profits to the amount of initial capital applied to the strategy or leave it out and use the same initial capital amount through the backtesting? The results can vary substantially depending on the type of a strategy one is testing (profits follow profits or profits follow loss). Any suggestions, references to the books/articles that talk about it are welcomed.

hi there alko

I don't know the answer, but I can think of someone who may be able to help.


@kevinkdog wrote a book on building algo systems and can probably offer his opinion about your query.

Reply With Quote
     

Old October 9th, 2016, 10:36 AM   #4 (permalink)
Trading Apprentice
Moscow, Russia
 
Futures Experience: Intermediate
Platform: MC
Favorite Futures: All
 
Posts: 17 since Aug 2016
Thanks: 4 given, 3 received


xplorer View Post
hi there alko

I don't know the answer, but I can think of someone who may be able to help.


@kevinkdog wrote a book on building algo systems and can probably offer his opinion about your query.

Thank you. Unfortunately I cannot send private message as i have only one post out there and need 5. Announced as antispam measure that requires me to spam posts first).

Reply With Quote
     

Old October 9th, 2016, 10:54 AM   #5 (permalink)
Elite Member
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,194 since Jul 2012
Thanks: 1,004 given, 3,965 received

Futures Edge on FIO

alko View Post
Hello all,
When performing backtesting constant USD seems that is the right approach, rather than using constant shares/contracts count as price varies. However, is it appropriate to add net profits to the amount of initial capital applied to the strategy or leave it out and use the same initial capital amount through the backtesting? The results can vary substantially depending on the type of a strategy one is testing (profits follow profits or profits follow loss). Any suggestions, references to the books/articles that talk about it are welcomed.

Thanks for the mention @xplorer

When I test, I always test with 1 contract. The reason is that I want to see what the strategy does over the whole period with that 1 contract. You can test with position sizing built in, but it may be hard then to distinguish where the performance comes from - is it from the actual trading edge, or maybe the edge has eroded over time, but that is masked because you are trading many more contracts (from reinvesting profits)? Sometimes it is hard to tell whiat is occurring in a combination curve.

So, when I test, it is with one contract. If that strategy passes my tests, then I look at adding it to my portfolio, and incorporate position sizing at that point.

But, you could make an argument for the flip side (testing with position sizing included), as my friend (and champion trader Andrea Unger) does. His point is that a good strategy with one contract might not be as good with position sizing as a weaker one contract strategy. For example, take two systems that average nearly the same profit over time, with "A" a bit better. But, "B" has small stop losses, and "A" has large stop losses. When you add in position sizing, "B" might be better because it will likely perform better with position sizing techniques.

Hope this helps!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
Reply With Quote
     
The following 4 users say Thank You to kevinkdog for this post:
     

Old October 9th, 2016, 11:57 AM   #6 (permalink)
Trading Apprentice
Moscow, Russia
 
Futures Experience: Intermediate
Platform: MC
Favorite Futures: All
 
Posts: 17 since Aug 2016
Thanks: 4 given, 3 received


kevinkdog View Post
Thanks for the mention @xplorer

When I test, I always test with 1 contract. The reason is that I want to see what the strategy does over the whole period with that 1 contract. You can test with position sizing built in, but it may be hard then to distinguish where the performance comes from - is it from the actual trading edge, or maybe the edge has eroded over time, but that is masked because you are trading many more contracts (from reinvesting profits)? Sometimes it is hard to tell whiat is occurring in a combination curve.

So, when I test, it is with one contract. If that strategy passes my tests, then I look at adding it to my portfolio, and incorporate position sizing at that point.

But, you could make an argument for the flip side (testing with position sizing included), as my friend (and champion trader Andrea Unger) does. His point is that a good strategy with one contract might not be as good with position sizing as a weaker one contract strategy. For example, take two systems that average nearly the same profit over time, with "A" a bit better. But, "B" has small stop losses, and "A" has large stop losses. When you add in position sizing, "B" might be better because it will likely perform better with position sizing techniques.

Hope this helps!

Thank you, Kevin @kevinkdog.

Reply With Quote
     
The following 2 users say Thank You to alko for this post:
     

Old October 10th, 2016, 03:01 AM   #7 (permalink)
Trading Apprentice
Moscow, Russia
 
Futures Experience: Intermediate
Platform: MC
Favorite Futures: All
 
Posts: 17 since Aug 2016
Thanks: 4 given, 3 received

To @artemiso. I appreciate the time you took to answer my question. Though it puzzles me why you deleted your post.

Reply With Quote
     

Reply



futures.io > Futures Trading, News, Charts and Platforms > Traders Hideout > backtesting - include profit in trading capital or not?

Thread Tools Search this Thread
Search this Thread:

Advanced Search



Upcoming Webinars and Events (4:30PM ET unless noted)
 

NinjaTrader 8: Features and Enhancements, Tips and Tricks

Dec 6
 

Al Brooks: Stop Losing when a Good Trade goes Bad, Correcting Mistakes

Elite only
 

Trading Technologies: Algo Design Lab hands-on

Dec 13
     

Similar Threads
Thread Thread Starter Forum Replies Last Post
NT brokerage which to use: Dorman Trading or Phillip Capital Rachel Brokers and Data Feeds 12 September 20th, 2016 08:22 PM
.NET Backtesting API/library - externalize backtesting from your trading platform andby Elite EasyLanguage Automated Trading 1 July 26th, 2016 10:25 PM
SMB Capital trading NYC, has anyone done this in house training ? anthony667 Vendors and Product Reviews 9 March 13th, 2016 02:09 PM
How much capital is enough to get started with automated Trading? treydog999 Elite Automated Trading 41 September 10th, 2013 11:53 AM
Trading with Small Capital sgtrades Stocks and ETFs Trading 17 December 18th, 2012 03:57 AM


All times are GMT -4. The time now is 01:55 PM.

Copyright © 2016 by futures.io. All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
 
no new posts

Page generated 2016-12-02 in 0.11 seconds with 19 queries on phoenix via your IP 54.161.216.242