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What’s the right process or best approach to backtestng trade setups and strategies
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Created: by kevinhpchan Attachments:0

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What’s the right process or best approach to backtestng trade setups and strategies

  #11 (permalink)
Seattle
 
Trading Experience: Beginner
Platform: Ninja Trader
Favorite Futures: CL
 
Posts: 24 since Jun 2018
Thanks: 11 given, 3 received


tpredictor View Post
@kevinhpchan The benefit to speeding up the market replay is that you can see how longer sequences unfold. So you can see how general structure unfolds. There is a benefit. On longer time scales, speeding up time can also make it easier to trade because one is able to "prime" better for the unfolding patterns versus in real-time the sequence may unfold so slowly so as to go unnoticed. The cost is that you lose the ability to experience how that process unfolds in the real-time, the self-doubt, waiting, etc. Also, if your personality is such that you like to place more bets then speeding up time can paradoxically improve performance because you can make more good bets within a certain psychological block of time. Example, if you are trading on a 1 minute chart, over a single trading hour, if for every 1 minute you could take a trade and you only wanted to trade the best 20% of the those 1 minute blocks then you would have 12 potential bars to act on within 1 hour. If you were trading 1 hour charts and you wanted a correspondent number of opportunities at the same selectivity level then you'd need to look at 60 hours of market activity. If the opportunities were evenly spaced, you would need to wait an average of 5 hours between trades versus 5 minutes.

Generally speaking, at this level of detail you are going to have to do your own work to determine what makes sense for your trading. I might add, very likely, the easiest way to outperform 70% of futures traders is simply to reduce your leverage.



Thank you so much. That was very helpful. Can you elaborate more on this statement:

“ the easiest way to outperform 70% of futures traders is simply to reduce your leverage”...


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  #12 (permalink)
North Carolina
 
Trading Experience: Beginner
Platform: NinjaTrader, Tradestation
Favorite Futures: es
 
Posts: 644 since Nov 2011

@kevinhpchan Yes, as you trade with more leverage you increase the hurdle factor for your predictions and path sensitivity. One way to look at is that if you have a setup that averages $100 profit, requires $500 risk per trade, and has a 60% winning percentage then your "edge" can be viewed as a constant. It doesn't matter if you trade this setup/system with a $500 account or $25,000 account in terms of the edge. However, the risk of ruin and the long term probability of making a given return will be much different. With the tiny account, you are likely to blow out within a few trades or possibly on the first trade. On the other hand, if you start with a larger account then you are much less likely to blow out the account but your return will be lower. What's important to understand is that trading the same edge, if you start with the small account you are most likely to lose but sure if you win you might win big but it is such a low probability that most of us would discount it. With the large account, you are more likely to win (make money at the end of some of term) but you won't win as much in proportion to the starting account size.

Most futures traders lose due to over-leverage. Add any sort of edge and you have, I figure, a good shot of moving into the top 30% of traders. There is another way to understand this. On any given trade then you could: 1. Capture a random return, 2. Capture an edge or bias, or 3. Capture a negative expectancy (gamed). If you take a larger risk then you reduce your risk of being gamed--or simply think of it as some range of returns for any given trade, if you can avoid the worst paths you can significantly improve your average.


kevinhpchan View Post
Thank you so much. That was very helpful. Can you elaborate more on this statement:

“ the easiest way to outperform 70% of futures traders is simply to reduce your leverage”...


Sent using the futures.io mobile app


Reply With Quote

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