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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)
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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)

  #301 (permalink)
Trading Apprentice
Espoo Finland
 
Futures Experience: Intermediate
Platform: TradingBlox
Favorite Futures: Stocks
 
Posts: 32 since Sep 2015
Thanks: 0 given, 10 received


kevinkdog View Post
Thanks for the question. And thanks for reading my book!


I use Excel for all my position sizing analysis. I've created tons of different spreadsheets over the years doing all sorts of crazy stuff. But nowadays I tend to keep things simple, still using Excel, but trying not to overthink the whole thing (which usually only makes historical testing look better!).

Thanks. I was hoping for some software where i can do this automagically. However I think you mentioned in your book that trading is a marathon and not a sprint.

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  #302 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,368 since Jul 2012
Thanks: 1,130 given, 4,339 received


bluefightingcat View Post
Thanks. I was hoping for some software where i can do this automagically. However I think you mentioned in your book that trading is a marathon and not a sprint.

There probably is software that will do it for you. There is software for just about any trading task (strategy building, optimization, walkforward, etc).

The problem with the software is that you can sacrifice comprehension for convenience. Sure, it is easy to have software do walkforward for you, but I have found it is much better to learn what the software is doing and why.

Good example: I was doing some position sizing exercises in Excel yesterday, and in building my model, I asked myself "why use average losing trade as a parameter - maybe use average monthly loss instead?" This lead to a pretty cool breakthrough in what I was doing. I would not have discovered it had I just hit the software "run" button.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #303 (permalink)
Trading Apprentice
Espoo Finland
 
Futures Experience: Intermediate
Platform: TradingBlox
Favorite Futures: Stocks
 
Posts: 32 since Sep 2015
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bluefightingcat View Post
I've been inspired by your book and our discussions in this forum to give WFA a try. I think I got a decent process in place but I wanted to get your opinion of whether this is viable. I am working with 15min Futures with data from 2009 until the end of 2016.

Step 1: Use data from 2009-2014 to optimise my strategy for the specific market with the aim of getting 10k per year per contract.
Step 2: Check to see whether it's still valid with out of sample data using 2015-2016.
Step 3: Optimize WF process using 2009 data (e.g. in sample/out sample lengths and ratios, and parameter sets to be stepped during WF).
Step 4: Run the WF from 2010-2016.
Step 5: Start Incubation period by live trading 1 contract.
Step 6: Gradually add contracts over next few months if continues to be successful.

Of course, with each step, you don't move to the next step unless the current step is successful.
What do you think?

Hi Kevin,

I was thinking off taking the above process one step further. I was thinking of adding some sort of genetic optimization algorithm to do the optimizing for me. That way the entire parameter space can be searched with me make a decision on how big the steps should be and which parameters should be optimized.
So all my in-sample testing would be done by trying to optimize the whole parameter space.

I was wondering whether you have any thoughts on that?

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  #304 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,368 since Jul 2012
Thanks: 1,130 given, 4,339 received


bluefightingcat View Post
Hi Kevin,

I was thinking off taking the above process one step further. I was thinking of adding some sort of genetic optimization algorithm to do the optimizing for me. That way the entire parameter space can be searched with me make a decision on how big the steps should be and which parameters should be optimized.
So all my in-sample testing would be done by trying to optimize the whole parameter space.

I was wondering whether you have any thoughts on that?

Realize every time you do genetic optimization, you'll likely get different optimum results. That makes using it with walkforward very difficult.

In general, genetic optimization to me means too many variables to optimize. I use it very sparingly - only on a limited dataset, and only to simplify my strategy (eliminate variables).

But again, with all this development, there usually is not "correct" answer. I see people succeed with methods I would NEVER use. Ultimately, if it makes you money, that is the key.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #305 (permalink)
Elite Member
HOLLYWOOD FL/USA
 
Futures Experience: Beginner
Platform: TOS, NT , RJO
Broker/Data: NT, TdAmeritrade, RJO
Favorite Futures: ES, CL, 6B, 6C, 6E, NQ
 
Posts: 12 since Apr 2017
Thanks: 13 given, 8 received

Monte Carlo Simulator

Hi Kevin,

thank you so much for making amazing resources available on your website. Gave me so much to think about and even study/research.

I have one question that I have not been able to research and find out on my own. I downloaded the Monte Carlo simulator from your site. I realize it is a simulator and uses random data. Many explanations on the internet does not focus on the financial aspect of the sim.

Could you point me to where I can better understand this simulator? When I input all my trades in your excel sheet, what does the program supposed to calculate. I get all these numbers and graphs that I cannot understand. What is calculated 2500 times ? What do the numbers mean if they are negative or positive ? What do I gain from this sim? Does it say anything about my success or is it a purely random outcome ? If so then why is it helpful?

So sorry to ask so many questions, I guess I am confused as to what it tells me after I input my trades. I understand if you don't have time to answer all these but I would greatly appreciate it if you can recommend a site where I can better understand it.

Jem

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  #306 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,368 since Jul 2012
Thanks: 1,130 given, 4,339 received


Jemo View Post
Hi Kevin,

thank you so much for making amazing resources available on your website. Gave me so much to think about and even study/research.

I have one question that I have not been able to research and find out on my own. I downloaded the Monte Carlo simulator from your site. I realize it is a simulator and uses random data. Many explanations on the internet does not focus on the financial aspect of the sim.

Could you point me to where I can better understand this simulator? When I input all my trades in your excel sheet, what does the program supposed to calculate. I get all these numbers and graphs that I cannot understand. What is calculated 2500 times ? What do the numbers mean if they are negative or positive ? What do I gain from this sim? Does it say anything about my success or is it a purely random outcome ? If so then why is it helpful?

So sorry to ask so many questions, I guess I am confused as to what it tells me after I input my trades. I understand if you don't have time to answer all these but I would greatly appreciate it if you can recommend a site where I can better understand it.

Jem


Simple explanation:

You run a backtest, and you get a sequence of trades, and from that you build an equity curve. From that equity curve, you know your return, your max drawdown, etc.

But, what if you had the same trades, but just in a different order?

That is what Monte Carlo simulation does. It takes your trades, and scrambles them up, giving you many different equity curves.

The theory is that going forward, any of those equity curves is possible, since they are all derived from your historical testing.

If you run the simulator, it creates 2500 different equity curves. It then calculates the statistics for the strategy, giving you probabilities of certain events occurring...

For example:

If I start with $10,000, what are the chances that I'll get wiped out trading this strategy?

How much capital do I need to safely trade this strategy?


And lots more.

I find this tool invaluable, and I use it daily. If fact, I am evaluating strategies right now with it.


Hope this helps!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #307 (permalink)
Elite Member
sweden
 
Futures Experience: Advanced
Platform: NinjaTrader,MetaTrader
Favorite Futures: futures, FX
 
Mabi's Avatar
 
Posts: 84 since Oct 2010
Thanks: 59 given, 64 received

For Montecarlo i use.

1. Randomize Trades order
2. Randomly skip trades
3. Randomize strategies parameters
4. Randomize starting bar
5. Randomize history data
6. Randomize spread
7. Randomize slippage
8. Randomize distance from price

A strategy that at 95% confidence have a Return drawdown change of more then 50% in any of above Montecarlo test i ditch.

I use Walkforward as my last test for pass criteria. For this i use A walkforward 3D matrix simulator. What i look at is the performance of the strategies between diffrent runs. Preferably all runs should have the same performance but they do not so i look at.

1. Net profit
2. WF net profit stability in each run
3. Percentage of profitable runs
4.Max profit in one run as percentage of total net profit
5.Min trades in one run
6. Max percent draw down in one run.
7. Max stagnation in %
8. WF return/DD stability

As a last check i compare the walkforward performance with the orginal strategy performance yearly so even if it passes all above criterias but it has a year that went from a winner to looser in comparison to the original i will not use the strategy because then it is most probably curve fitted or better said not adaptable to changes in the market it trade.

Now above is probably overkill to some intent but i work with computor generated strategies and this workflow seems to work since so far i have no strategies that have had worse performance live traded then historically. Well some have performed badly but that is caused by a settings misstake from my side. When i start trading them live i look at consecutive loosers performance if the average is 2.5 and i now i have 8 something is wrong.


Last edited by Mabi; July 1st, 2017 at 09:45 PM.
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  #308 (permalink)
Elite Member
San Diego, USA
 
Futures Experience: Intermediate
Platform: MC
Favorite Futures: All
 
Posts: 40 since Aug 2016
Thanks: 7 given, 8 received

underwater equity in USD in TS

Hello Kevin,

Since you have a ton of experience with Tradestation, i wanted to ask you how to get underwater equity in USD. It shows only in % and it is of little use as you can employ various money management techniques and not necessarily all your equity will be invested. In my case i like to use fixed usd amount for backtesting, since i want to eliminate the start date risk/luck in a backtest. Do you know how to go about it in TS? (btw, i also use Multicharts and there drawdowns are in USD)

Also, what is your opinion portfolio maestro? Do you use it for backtesting generic algos? what are some of the pitfalls or shortcomings there that you found out in backtesting generic algos? (again in my case i also use portfolio backtesting in MC and found it useful).

You opinion is highly valued as always, just like your book.

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  #309 (permalink)
Market Wizard
Cleveland Ohio/United States
 
Futures Experience: Advanced
Platform: Tradestation
Broker/Data: various
Favorite Futures: futures
 
Posts: 2,368 since Jul 2012
Thanks: 1,130 given, 4,339 received


alko View Post
Hello Kevin,

Since you have a ton of experience with Tradestation, i wanted to ask you how to get underwater equity in USD. It shows only in % and it is of little use as you can employ various money management techniques and not necessarily all your equity will be invested. In my case i like to use fixed usd amount for backtesting, since i want to eliminate the start date risk/luck in a backtest. Do you know how to go about it in TS? (btw, i also use Multicharts and there drawdowns are in USD)

Also, what is your opinion portfolio maestro? Do you use it for backtesting generic algos? what are some of the pitfalls or shortcomings there that you found out in backtesting generic algos? (again in my case i also use portfolio backtesting in MC and found it useful).

You opinion is highly valued as always, just like your book.

Thanks for the question.

For any measure/metric that you can't find in the Performance Report, I would recommend you code it yourself and print it to the print log or to a file. That is what I do when I want a metric that I can't find elsewhere.

I have never used Portfolio Maestro, so I cannot say it is good or bad. I have used custom Excel tools for the same purpose, going back to the time before PM was part of Tradestation.

Kevin

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #310 (permalink)
Elite Member
Boston, MA
 
Futures Experience: Intermediate
Platform: NinjaTrader
Broker/Data: Dorman/CQG/Rithmic/IQFeed
Favorite Futures: Oil, ES, Currency futures
 
Silent warrior's Avatar
 
Posts: 32 since Feb 2015
Thanks: 100 given, 5 received

Determining the MFE/MAE from each signal.


Hey Kevin!

How do you determine the Maximum Favorable Excursion/Maximum Adverse Excursion for any given signal during a back test? Trying to determine stop/target size to maximize expectancy.

Thanks in advance for your feedback!

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