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

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  #301 (permalink)
 bluefightingcat 
Espoo Finland
 
Experience: Intermediate
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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)
 kevinkdog   is a Vendor
 
 
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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.

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  #303 (permalink)
 bluefightingcat 
Espoo Finland
 
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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)
 kevinkdog   is a Vendor
 
 
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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.

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  #305 (permalink)
 Jemo 
FLorida / USA
 
Experience: Intermediate
Platform: TOS, TS, Sierra Charts
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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)
 kevinkdog   is a Vendor
 
 
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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!

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  #307 (permalink)
 Mabi 
sweden
 
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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.

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  #308 (permalink)
 alko 
San Diego, USA
 
Experience: Intermediate
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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)
 kevinkdog   is a Vendor
 
 
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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

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  #310 (permalink)
 Silent warrior 
Boston, MA
 
Experience: Advanced
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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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  #311 (permalink)
 kevinkdog   is a Vendor
 
 
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Silent warrior View Post
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!


Most platforms include that in the backtest report.

But be careful with what you are using it for - if you use those values, and then pick your stops/targets for those same trades based on what you calculated, your results will be biased - meaning that in the future those values will not perform nearly as well...

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  #312 (permalink)
 Mabi 
sweden
 
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Silent warrior View Post
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!

If you have a portfolio of strategies it can be a good tool using MAE to find out intraday equity drawdowns for your portfolio which can be higher then the closed drawdown. There is some portfolio analyzer programs that can do this by loading 1 minute data for the instruments involved in the analyze.

 
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  #313 (permalink)
 bluefightingcat 
Espoo Finland
 
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Do you have some advice on how to find out which parameters have the most effect on the success of a system? In optimization and walk forward it is not always realistic to test the entire parameter space, so sometimes I find myself having trouble thinking about which parameters I should adjust in optimization/WF and which I should just leave alone. Do you have any tips on what the best way to identify which parameters should be adjusted and which not?

 
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  #314 (permalink)
 kevinkdog   is a Vendor
 
 
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bluefightingcat View Post
Do you have some advice on how to find out which parameters have the most effect on the success of a system? In optimization and walk forward it is not always realistic to test the entire parameter space, so sometimes I find myself having trouble thinking about which parameters I should adjust in optimization/WF and which I should just leave alone. Do you have any tips on what the best way to identify which parameters should be adjusted and which not?

There are a couple of tricks I use to help narrow down parameters and ranges. The first thing is that in my experience if you have a lot of parameters to start, your system is too complicated. So really before you get to that point, you should simplify your system.

But let's say you have done that as much as possible - then what? I usually will optimize each parameter by itself on a small piece of data, and see what its impact on performance is. After I do this with all parameters, I have a good idea which ones are driving the strategy, and which ones that are not. Then I usually fix or eliminate the ones that are not that important.

Hope this helps!

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  #315 (permalink)
 bluefightingcat 
Espoo Finland
 
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kevinkdog View Post
There are a couple of tricks I use to help narrow down parameters and ranges. The first thing is that in my experience if you have a lot of parameters to start, your system is too complicated. So really before you get to that point, you should simplify your system.

But let's say you have done that as much as possible - then what? I usually will optimize each parameter by itself on a small piece of data, and see what its impact on performance is. After I do this with all parameters, I have a good idea which ones are driving the strategy, and which ones that are not. Then I usually fix or eliminate the ones that are not that important.

Hope this helps!

Thanks! What about if the parameters are dependent on each other? Changing one parameter at a time will still affect the other if there is some sort of correlation between the two.

 
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  #316 (permalink)
 kevinkdog   is a Vendor
 
 
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bluefightingcat View Post
Thanks! What about if the parameters are dependent on each other? Changing one parameter at a time will still affect the other if there is some sort of correlation between the two.

You could test them both at the same time. I usually see the second order effects like this to be be a smaller driver than the variable by itself (first order effect).

In doing this, I am guided by trying to simplify the strategy. And unfortunately, sometimes simplifying means you have to give up certain things (like maybe the situation you suggest). But for me, simple rules over everything...

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  #317 (permalink)
 bluefightingcat 
Espoo Finland
 
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I have a new strategy I am developing but unfortunately it does not produce a huge number of trades. I am on the verge of rejecting it but I thought before I do so, get your thoughts on it. This is for 15 minute futures.

The backtest has 7 years of data. The best optimization so far produces 83 trades during that time. So about 10 trades a year. However each trade produces an average profit of about $350 per contract and that includes slippage and commissions. It has a 75% win rate. So far the strategy only has 1 entry rule and 1 exit rule and a total of 4 parameters. 2 for each rule.

Would you considering exploring this further?

 
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  #318 (permalink)
 choke35 
Germany
 
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bluefightingcat View Post
I have a new strategy I am developing but unfortunately it does not produce a huge number of trades. I am on the verge of rejecting it but I thought before I do so, get your thoughts on it. This is for 15 minute futures.

The backtest has 7 years of data. The best optimization so far produces 83 trades during that time. So about 10 trades a year. However each trade produces an average profit of about $350 per contract and that includes slippage and commissions. It has a 75% win rate. So far the strategy only has 1 entry rule and 1 exit rule and a total of 4 parameters. 2 for each rule.

Would you considering exploring this further?

The critical point is gauging the degree of overfitting.
E.g.: If your 7 in-sample years are all within the current 2009-2017 uptrend in the indices,
the system could be next to worthless even with a small set of parameters.

So what are the results of the out-of-sample tests?

If the out-of-sample results are as good and the same system performs
  • on several futures of different categories
  • on different intraday time frames
I'd explore it further.

 
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  #319 (permalink)
 kevinkdog   is a Vendor
 
 
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bluefightingcat View Post
I have a new strategy I am developing but unfortunately it does not produce a huge number of trades. I am on the verge of rejecting it but I thought before I do so, get your thoughts on it. This is for 15 minute futures.

The backtest has 7 years of data. The best optimization so far produces 83 trades during that time. So about 10 trades a year. However each trade produces an average profit of about $350 per contract and that includes slippage and commissions. It has a 75% win rate. So far the strategy only has 1 entry rule and 1 exit rule and a total of 4 parameters. 2 for each rule.

Would you considering exploring this further?

I have similar metrics for a few strategies. If your results are all out of sample or from walkforward, I would put more faith in them. It would obviously be nicer to see more trades.

The bigger question to me is not WHAT the results were but HOW you developed the strategy. Most people don't realize that the HOW is the big deal. For example, if your results are all walkforward, and from your first attempt at creating the strategy, I'd say "great!" But, what if the results you showed are after 6 months of work, where you ran dozens of variations before settling on this one? Then, I'd say "not so great."


Here is an example of a strategy that I trade live. It has 2 parameters to optimize, and I have been trading it live for a few years. But look at the low number of trades - originally that caused me to sit on the strategy and watch it live for a few years before putting real money behind it. But real time performance has shown that this strategy is pretty good.






Hope this helps!

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  #320 (permalink)
 bluefightingcat 
Espoo Finland
 
Experience: Intermediate
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Trading: Stocks
 
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kevinkdog View Post
I have similar metrics for a few strategies. If your results are all out of sample or from walkforward, I would put more faith in them. It would obviously be nicer to see more trades.

The bigger question to me is not WHAT the results were but HOW you developed the strategy. Most people don't realize that the HOW is the big deal. For example, if your results are all walkforward, and from your first attempt at creating the strategy, I'd say "great!" But, what if the results you showed are after 6 months of work, where you ran dozens of variations before settling on this one? Then, I'd say "not so great."


Here is an example of a strategy that I trade live. It has 2 parameters to optimize, and I have been trading it live for a few years. But look at the low number of trades - originally that caused me to sit on the strategy and watch it live for a few years before putting real money behind it. But real time performance has shown that this strategy is pretty good.




Hope this helps!

Thanks that is helpful indeed.

 
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  #321 (permalink)
 alko 
San Diego, USA
 
Experience: Intermediate
Platform: MC
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Hello Kevin,

What settings do you use in TS for strategy fill logic automation tab? If possible, could you send the screen shot.
And what restriction thus you have to follow with the logic selected, ie cannot run multiple strategies/charts on the same instrument.

Also, what do you use instead of marketposition for LIVE trading to get strategy specific position?

I am looking for the best TS setting to run multiple algos on a given instrument (i do not want to put them in a single algo).

Thank you!

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  #322 (permalink)
 kevinkdog   is a Vendor
 
 
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alko View Post
Hello Kevin,

What settings do you use in TS for strategy fill logic automation tab? If possible, could you send the screen shot.
And what restriction thus you have to follow with the logic selected, ie cannot run multiple strategies/charts on the same instrument.

Also, what do you use instead of marketposition for LIVE trading to get strategy specific position?

I am looking for the best TS setting to run multiple algos on a given instrument (i do not want to put them in a single algo).

Thank you!

Thanks for the questions.

The settings for the fill logic depend in part on the type of strategies you run. So, I hesitate to show what I do, because it may not be best for your situation. For example, I used to have "send stop orders to TS" selected, but found some problems with it. Because of that, and because I have a super reliable internet connection, I now choose to not have that selected.

So, what I use might not be right for you. I suggest you do what I did: try the default, and if you see problems, look at changing some settings. It sounds like a BS answer, but it is the best way.

I use marketposition for live strategies. My strategies don't know what my actual account is doing. The Tradestation Trade Manager handles the matching of strategy and actual account positions.

Running multiple algos with the same instrument is loaded with potential issues. I wrote a series of articles a while back that discusses that (I use a few of those methods for my own trading):

Trading Multiple Strategies With Same Instrument

https://systemtradersuccess.com/trading-multiple-strategies-with-the-same-instrument-part-1/

https://systemtradersuccess.com/trading-multiple-strategies-with-the-same-instrument-part-2/

https://systemtradersuccess.com/trading-multiple-strategies-with-the-same-instrument-part-3/

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  #323 (permalink)
 Mabi 
sweden
 
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Been looking in to walkforward period lately. I find that the shorter periods i use the larger the net profit will be.Say i choose a walkforward period of evry three months on 3 years of data and i picked it because it was the best one with only 1 loosing period. Now i test this picked period an run it on previous 3 years data which is essential OOS and if the performance is equally good would we then be able to see this Walkforward optimasation as a robust one?.By doing it this way and if it works the teoriticall performance skyrockets.

 
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  #324 (permalink)
 kevinkdog   is a Vendor
 
 
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Mabi View Post
Been looking in to walkforward period lately. I find that the shorter periods i use the larger the net profit will be.Say i choose a walkforward period of evry three months on 3 years of data and i picked it because it was the best one with only 1 loosing period. Now i test this picked period an run it on previous 3 years data which is essential OOS and if the performance is equally good would we then be able to see this Walkforward optimasation as a robust one?.By doing it this way and if it works the teoriticall performance skyrockets.

That is not the approach I use, so it would not be fair of me to say it is robust or not. The ultimate judge of that is real time performance - does the walkforward approach you are using translate to favorable real time performance, confirmed by many strategies over time? I know the way I do walkforward does, but I can't yes or no to your approach.

Hopefully you see my point. You may indeed have a valid process, but only real time performance can verify it.

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  #325 (permalink)
 bluefightingcat 
Espoo Finland
 
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I've come across any interesting (or actually an annoying) issue. I've been using Walk Forward to test my strategies and so far all has been good. I have a few strategies in incubation and so far things are looking cautiously promising.

However I was testing my latest strategy with WF and I came across a situation where the results were completely different depending on the start date of the WF. I've attached a screenshot with 2 different equity curves and results. The only difference between these two is the start date. The equity curve on the right starts 2 years later compared to the one on the left.
As you can see the results are totally different. I would expect the results of the equity curve on the right to mimic the one on the left (starting from 2012 onwards). But this is not the case. It implies these results are quite random. Do I need to monte carlo my WF results or something?

FYI: These are for 15min futures of NQ. Only 1 contract was traded at a time.

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I've come across any interesting (or actually an annoying) issue. I've been using Walk Forward to test my strategies and so far all has been good. I have a few strategies in incubation and so far things are looking cautiously promising.

However I was testing my latest strategy with WF and I came across a situation where the results were completely different depending on the start date of the WF. I've attached a screenshot with 2 different equity curves and results. The only difference between these two is the start date. The equity curve on the right starts 2 years later compared to the one on the left.
As you can see the results are totally different. I would expect the results of the equity curve on the right to mimic the one on the left (starting from 2012 onwards). But this is not the case. It implies these results are quite random. Do I need to monte carlo my WF results or something?

FYI: These are for 15min futures of NQ. Only 1 contract was traded at a time.


I have seen this before, sometimes when the start date only moves by a few days/weeks. You could also get widely different results with the same start date, if you vary the IN period and/or OUT period slightly.

The big question is "does robustness in results with different start dates, or IN/OUT periods etc indicate a better strategy?"

My answer to that is "possibly." Not a great answer, I know, but I just don't have enough data to draw any conclusions. I have strategies that work good and bad with all these cases:

Strategy results change a lot due to start date changes: real time -- sometimes good, sometimes not
Strategy results do NOT change a lot due to start date changes: real time -- sometimes good, sometimes not

Common sense says strategies where results do not change much because of start date differences should be more robust and better going forward. But I have also found that common sense with trading things doesn't always hold.

The real way to evaluate this is to have about 30-50 strategies with each characteristic, and then track them live for a few years and see if one group performs better.


TL;DR - I do not have enough data to support any conclusion.

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 Mabi 
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Walkforward can for sure be beneficial. You can have diffrent settings for the same strategy and if it then still is profitable it is in my mind a sign of that it is robust. Today I do not use strategies that cant have diffrent settings and still be profitable. I like strategies that can be high % win and low payout ratio and low % win and high payout ratio just by changing stops and targets and still be profitable. Problem in trading is the time needed to find out if it is a good strategy or not by incubation and even bigger problem is that if it did perform during incubation the risk i greater that it will not perform live coming period so with that in mind my question is. After a sucessfull incubation period do You perform WFO before putting them live.

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Walkforward can for sure be beneficial. You can have diffrent settings for the same strategy and if it then still is profitable it is in my mind a sign of that it is robust. Today I do not use strategies that cant have diffrent settings and still be profitable. I like strategies that can be high % win and low payout ratio and low % win and high payout ratio just by changing stops and targets and still be profitable. Problem in trading is the time needed to find out if it is a good strategy or not by incubation and even bigger problem is that if it did perform during incubation the risk i greater that it will not perform live coming period so with that in mind my question is. After a sucessfull incubation period do You perform WFO before putting them live.

I do not agree with your statement in red (my experience is exactly the opposite), but to answer the question I continue WF when I take a strategy live. So, if my walkforward out period was 6 months, then every six months I will reoptimize and use those parameters going forward until next reopt.

Kevin

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 jamesw 
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What do you think about TS's Walk Forward Optimizer?

I notice you do not use it in your book. Using WFO seems like I am "optimizing my optimizing", but I don't have the intuitive sense to know what appropriate out of sample and in sample periods might be. It seems to provide guidance and a lot of other helpful data.

Thanks!




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What do you think about TS's Walk Forward Optimizer?

I notice you do not use it in your book. Using WFO seems like I am "optimizing my optimizing", but I don't have the intuitive sense to know what appropriate out of sample and in sample periods might be. It seems to provide guidance and a lot of other helpful data.

Thanks!




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I use a 3rd party tool called Stratopt WFP, which was around long before TS WF tool was part of their platform.

TS WF does a couple of things I do not particularly like. I have seen good strategies created with it though.

Be VERY careful with the Cluster Analysis - it can be very dangerous.

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 Mabi 
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I do not agree with your statement in red (my experience is exactly the opposite), but to answer the question I continue WF when I take a strategy live. So, if my walkforward out period was 6 months, then every six months I will reoptimize and use those parameters going forward until next reopt.

Kevin

Okey the statement was based on short time experince. I picked out the best performing strategies after 6 months live trading from 3 diffrent portfolios with up to 20 strategies each and created a new portfolio. The new portfolio with the handpicked 8 strategies went straight down wile the original portfolios did just fine because other strategies was now doing good so in away diversification is the key and not short time performance of singel strategies. Or my strategies are just not good enought to make it alone wich is why i am looking into WFO.

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 bluefightingcat 
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kevinkdog View Post
I have seen this before, sometimes when the start date only moves by a few days/weeks. You could also get widely different results with the same start date, if you vary the IN period and/or OUT period slightly.

The big question is "does robustness in results with different start dates, or IN/OUT periods etc indicate a better strategy?"

My answer to that is "possibly." Not a great answer, I know, but I just don't have enough data to draw any conclusions. I have strategies that work good and bad with all these cases:

Strategy results change a lot due to start date changes: real time -- sometimes good, sometimes not
Strategy results do NOT change a lot due to start date changes: real time -- sometimes good, sometimes not

Common sense says strategies where results do not change much because of start date differences should be more robust and better going forward. But I have also found that common sense with trading things doesn't always hold.

The real way to evaluate this is to have about 30-50 strategies with each characteristic, and then track them live for a few years and see if one group performs better.


TL;DR - I do not have enough data to support any conclusion.

This has kind of opened up a can of worms. Incubation and live trading are the ultimate tests to see if things work but I would much prefer to also have some sort of confidence in my back-testing. This WF issue has reduced my confidence in WF at this point and I don't really know where to go from here.....Abondon WF....Dig deeper......?

 
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 Mabi 
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This has kind of opened up a can of worms. Incubation and live trading are the ultimate tests to see if things work but I would much prefer to also have some sort of confidence in my back-testing. This WF issue has reduced my confidence in WF at this point and I don't really know where to go from here.....Abondon WF....Dig deeper......?

I Agree, actually this is one of my reasons to start working with WFO.. Say over a 10 year period most strategies have at least 1 year or more stagnation. You never know when this will occour. With WFO it seems you can minimise this but short time performance can change greatly. I just launched 16 more portfolios with 10 strategies each . These are randomly picked from a pack of 300 i have made that all have 0 loosing years back to 2003. First week were good 10 of 16 are in profit . None has been adapted to any WFA .My plan is to implement the WFA settings asap and launch 16 more.This will take some time tought to implement and now i am on Cruise Ship

 
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This has kind of opened up a can of worms. Incubation and live trading are the ultimate tests to see if things work but I would much prefer to also have some sort of confidence in my back-testing. This WF issue has reduced my confidence in WF at this point and I don't really know where to go from here.....Abondon WF....Dig deeper......?

Find a process that you feel comfortable with, that also yields acceptable real time results. You may find this includes walkforward, and you may find it does not include WF.

There is a right way to d all this, and a wrong way. In fact, there are many right ways, but practically an infinite number of wrong ways!

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 alko 
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Hello Kevin,
When i started running live TS i had to deal with often disconnects (which i hoped to avoid vs MC with IB) and thus had to deal with numerous reconnection issues and putting strategies back to live.

How do you deal with disconnections? More specifically, how do you reconnect back and restore the positions and orders? Do you use any automated recovery techniques you can share? May be you can take us through your steps.
I run numerious algos on same instruments, which potentially make the recovery more difficult. Any advices in such particular situation?




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alko View Post
Hello Kevin,
When i started running live TS i had to deal with often disconnects (which i hoped to avoid vs MC with IB) and thus had to deal with numerous reconnection issues and putting strategies back to live.

How do you deal with disconnections? More specifically, how do you reconnect back and restore the positions and orders? Do you use any automated recovery techniques you can share? May be you can take us through your steps.
I run numerious algos on same instruments, which potentially make the recovery more difficult. Any advices in such particular situation?




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Wow, you've come along way since joining futures.io, if you are running numerous algos already - nice job!

You need to find the root cause of numerous disconnects - if it is your internet connection, switching to MC will not help.

Last night there were a bunch of TS disconnects, though. Not a typical occurrence.

My strategies reconnected just fine, with no intervention on my part. A lot of it depends on your strategies. Depending on the strategy, you may need to manually re-sync strategy, manually add/cancel orders, etc. You should have a checklist handy that would run you through things to check (which I've just listed).

Are you actually running numerous strats on same instrument successfully in Tradestation? If so, kudos to you - I've never been able to make that work satisfactorily.

Keep in mind if you switch to MC, your strategies may perform differently, sometimes a lot worse (or better). That depends on the instrument.

But I would first determine for sure that switching from TS to MC is the best move to make. Such a switch will have (sometimes unintended) consequences...

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 alko 
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TS disconnection on my live account occur due to TS disconnects. When I called them they said that it is better to reload strategies every weekend, which clearly I do not want to do and should not in fact. I guess last Friday was again TS to blame to disconnects as you seem to confirm the same issue with your connection. I also experienced some disconnections over the weekend with IB, they also seem to do some systems checks that lead to such disconnects. At least now I will be able to compare which one is more stable.

I am just still puzzled with the system relaunch after disconnect. it seems to be easier to cancel all orders and recalc all strategies from the start, which is pain in itself.

I run some algos in MC as well connected to IB. I wanted to try TS as an addition to MC and have TS handle generic algos as TS has some embedded features that make some algos easier to implement, in my opinion.
On the other side, MC is much more powerful in calculations of algos and its portfolio trader is also better and has less bugs that Portfolio Maestro of TS (though TS does better WF than MC).

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alko View Post
TS disconnection on my live account occur due to TS disconnects. When I called them they said that it is better to reload strategies every weekend, which clearly I do not want to do and should not in fact. I guess last Friday was again TS to blame to disconnects as you seem to confirm the same issue with your connection. I also experienced some disconnections over the weekend with IB, they also seem to do some systems checks that lead to such disconnects. At least now I will be able to compare which one is more stable.

I am just still puzzled with the system relaunch after disconnect. it seems to be easier to cancel all orders and recalc all strategies from the start, which is pain in itself.

I run some algos in MC as well connected to IB. I wanted to try TS as an addition to MC and have TS handle generic algos as TS has some embedded features that make some algos easier to implement, in my opinion.
On the other side, MC is much more powerful in calculations of algos and its portfolio trader is also better and has less bugs that Portfolio Maestro of TS (though TS does better WF than MC).

If you have frequent disconnects from TS, it sounds like you have something else possibly going on, because that is not indicative of my experience.

Sounds like you have a plan, though.

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I use a 3rd party tool called Stratopt WFP, which was around long before TS WF tool was part of their platform.

TS WF does a couple of things I do not particularly like. I have seen good strategies created with it though.

Be VERY careful with the Cluster Analysis - it can be very dangerous.


By the way, Stratopt WFP, even though it has been around a while, is still heavily used by systematic and algorithmic developers. Here are some happy Stratopt users, who spent 4 days in Cleveland this past weekend building strategies (mainly with Tradestation), using Stratopt, etc.


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A big THANK YOU to @SMCJB for treating me to the Texans and Browns football game, and for letting me stay at his great house with his super nice family. I had a great time in Houston with you! Oh yes, we also talked trading some, too!!!

Thanks!

@SMCJB on the left, me on the right)


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 Thatsbooo 
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Hi @kevinkdog

First of all, I finished the last page of your book and it was really helpful! Great work!

I hope you can answer to some questions which I have about WFO:

1. How do you discover if a parameter is stable? What I mean is, with a "conventional optimization" I can see all the results
(i.e. Net Profit) of my parameter and pick the "most stable" one which is close to each other with a still acceptable Net Profit even if it's not that one with the highest profit, but in WFO I only know which parameter is the "best one"?

2. If parameter x for the first IS Period is 500 and for the second one is 1500, how do you determine how big of the Range is acceptable?

3. I guess, the most important thing is to avoid over-optimization, so i thought to take the years 2014-2017 as my "IS Period" and plot the optimization results to 2000-2013 to see if the equity curve is roughly similar to my IS Period. What do you think about that?

Thanks!

 
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goodoboy
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Hello @kevinkdog, I hope all is well with you and family.

I am currently still reading your book, practicing coding some simple strategies, just getting organized.

On page 85, regarding Entry Rules:

Few questions to make sure I understand:

1. If I use Market Orders to entry trade once the trade setup signal is True, does this mean my parameter is 0? So nothing to optimize for entry.

2. If I use Limit Order to enter trade at X ticks from close of recent bar once the trade setup signal is True, does this mean I now have 1 optimizable entry parameter?

Thank you

 
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Hi @kevinkdog

First of all, I finished the last page of your book and it was really helpful! Great work!

I hope you can answer to some questions which I have about WFO:

1. How do you discover if a parameter is stable? What I mean is, with a "conventional optimization" I can see all the results
(i.e. Net Profit) of my parameter and pick the "most stable" one which is close to each other with a still acceptable Net Profit even if it's not that one with the highest profit, but in WFO I only know which parameter is the "best one"?

2. If parameter x for the first IS Period is 500 and for the second one is 1500, how do you determine how big of the Range is acceptable?

3. I guess, the most important thing is to avoid over-optimization, so i thought to take the years 2014-2017 as my "IS Period" and plot the optimization results to 2000-2013 to see if the equity curve is roughly similar to my IS Period. What do you think about that?

Thanks!

Thanks for the kind words - glad you enjoy the book!

1. You are right, stability is harder to determine with walkforward. So, normally I check parameter stability during preliminary testing (the 70% rule), and then during walkforward I look at a few different combos of IN/OUT. The second method is not as effective as the first.

2. I pick ranges long before walkforward testing. It is a mistake to do so afterwards, in my opinion. Sometimes it is hard to pick suitable ranges, so I rely on early testing to help me determine what is appropriate. Eventually it becomes more of a feel thing ("i want a short term indicator, so that means my range should be XX-XX")

3. I have never tried that, so I can't say it would work or not. Many times there is no right answer with this stuff. I suggest you try it, and if it works with real money, then go for it it.

Good Luck!

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Hello @kevinkdog, I hope all is well with you and family.

I am currently still reading your book, practicing coding some simple strategies, just getting organized.

On page 85, regarding Entry Rules:

Few questions to make sure I understand:

1. If I use Market Orders to entry trade once the trade setup signal is True, does this mean my parameter is 0? So nothing to optimize for entry.

2. If I use Limit Order to enter trade at X ticks from close of recent bar once the trade setup signal is True, does this mean I now have 1 optimizable entry parameter?

Thank you

Thanks for the questions...

1. Not sure I understand. The parameters would be associated with the setup signal. For example, you could enter at an y bar high close:
If close=highest(close,y) then buy next bar at market;
"y" would be your only parameter to optimize

2. This would be a parameter you could optimize, yes. But you might have others, with rule #1 shown.

Hope this helps!

Kevin

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goodoboy
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kevinkdog View Post
Thanks for the questions...

1. Not sure I understand. The parameters would be associated with the setup signal. For example, you could enter at an y bar high close:
If close=highest(close,y) then buy next bar at market;
"y" would be your only parameter to optimize

2. This would be a parameter you could optimize, yes. But you might have others, with rule #1 shown.

Hope this helps!

Kevin

Thank you Kevin. I appreciate the response.

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 Thatsbooo 
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Thank you Kevin for your answer, that was a big help!

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 fivewhy 
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Kevin, was just reading the intro to your book and if that story is true then you have more intestinal fortitude than me and are more of a man than I will ever be (and I mean that). Having said that, I trust your judgment based on what I've listened to of you on Better Sys Trader podcast and I have two questions.
  1. What do you think of System Parameter Permutation, and would you be willing to a do a webcast seminar discussing it? Or do you think its rubbish? Or is it not something you've looked into? My understanding of SPP is highly limited but it appears the simplest form of SPP is to split your backtest data into x samples (which would all be in-sample) and then optimize over each sample. Then run linear regression analysis on the optimization results for each sample to determine if there is a similarity in the opti results (by "results", I mean the parameters that perform best according to whatever your fitness function happens to be). However, my research (random googling while sipping bourbon) indicates SPP can be applied in a much more complicated form where not only the parameters are changed, but also some the underlying rules of the system are changed slightly...or perhaps I am misunderstanding something when I say that. Anyway, I would love to hear your thoughts if you got time.

  2. This question is a fishing expedition for thoughts (ignore if needed). I seem to be good at developing automated systems that excel in finite market conditions (regimes), but of course suck in anything other than what it was designed for. So the difference between what happens vs what I would prefer to happen seems to be whether I can accurately predict what type of regime will occur...I should state that my systems are usually intraday that perform better in one "type of day" versus another (think: market profile day types). I think it is important to understand that I'm not talking about a simple regime filter that acts to turn off/on a particular strategy because any "filter" is usually going to be too laggy to be effective for what I'm after (which might mean I'm trying to hard for too much!!). I know I'm not giving enough info here (tho I'm not trying to hide anything either), but it seems to me that my problem is in my approach to coming up with new ideas. Or maybe it's something else. Like I said...ignore this if needed, just looking for food-for-thought.

Take care, hope all is well with you.

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Kevin, was just reading the intro to your book and if that story is true then you have more intestinal fortitude than me and are more of a man than I will ever be (and I mean that). Having said that, I trust your judgment based on what I've listened to of you on Better Sys Trader podcast and I have two questions.
  1. What do you think of System Parameter Permutation, and would you be willing to a do a webcast seminar discussing it? Or do you think its rubbish? Or is it not something you've looked into? My understanding of SPP is highly limited but it appears the simplest form of SPP is to split your backtest data into x samples (which would all be in-sample) and then optimize over each sample. Then run linear regression analysis on the optimization results for each sample to determine if there is a similarity in the opti results (by "results", I mean the parameters that perform best according to whatever your fitness function happens to be). However, my research (random googling while sipping bourbon) indicates SPP can be applied in a much more complicated form where not only the parameters are changed, but also some the underlying rules of the system are changed slightly...or perhaps I am misunderstanding something when I say that. Anyway, I would love to hear your thoughts if you got time.

  2. This question is a fishing expedition for thoughts (ignore if needed). I seem to be good at developing automated systems that excel in finite market conditions (regimes), but of course suck in anything other than what it was designed for. So the difference between what happens vs what I would prefer to happen seems to be whether I can accurately predict what type of regime will occur...I should state that my systems are usually intraday that perform better in one "type of day" versus another (think: market profile day types). I think it is important to understand that I'm not talking about a simple regime filter that acts to turn off/on a particular strategy because any "filter" is usually going to be too laggy to be effective for what I'm after (which might mean I'm trying to hard for too much!!). I know I'm not giving enough info here (tho I'm not trying to hide anything either), but it seems to me that my problem is in my approach to coming up with new ideas. Or maybe it's something else. Like I said...ignore this if needed, just looking for food-for-thought.

Take care, hope all is well with you.

Thanks for the questions, and thanks for saying you trust my judgment - in an industry full of scumbag educators, I cherish my reputation, and I am glad others see it too.

As far as intestinal fortitude, I think it was more stupidity. I mean seriously, what kind of idiot (besides me) wires margin call money so frequently that he gets gifts for the grandchildren of the bank wire transfer lady?!?!?! Crazy, but true!

To answer your questions:

1. I have looked at SPP, tried it out a bit, but definitely am not someone who should give a webinar on it. The creator of it should do that, as he knows it best and won an award for it. My only concern with SPP, or really any new technique or approach in trading, is that I want to see real time proof that it works. That was lacking in the SPP paper I read. So, it may indeed have validity, you just should prove it to yourself via real time results.

2. Market Wizard Dr. Van Tharp, who has a lot of good info, suggests this approach. By having different strategies for different market regimes, you always will be ready to turn on the applicable strategy.

Sounds like a great concept, but the devil is in the details.

To do this, you need a "controller" or "switcher" strategy that turns on/off the appropriate strategy at the right time. So far so good. The problem is by the time you know the market regime has changed, it is always late. As you say, it is laggy.

So, what you want to do is predict the regime before it happens.


I think it is a great idea, but VERY hard thing to do in practice. How would you propose doing it?

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 fivewhy 
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kevinkdog View Post
I think it is a great idea, but VERY hard thing to do in practice. How would you propose doing it?

Give me some time to mull it over a bit more and write a semi-cogent response. I've been thinking about it and the more I think about it, the more I think I need to think. Lol.

I should post this weekend. Be back.

 
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 kevinkdog   is a Vendor
 
 
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I have an old version of an over $600 trading course. I got a ton of value out of it, so I have decided to give it away and share the knowledge.

I learned more from this educator than any other trading educator - by far!

I do not want to disclose the name of the educator, because a revised version of this product is still being sold by him.

This is a cassette tape version, and I believe all of them work (I have not tried recently).

In general, the package is in really good shape.


This can be yours for US residents, basically for free. I only ask for 2 things:

1. You pay shipping. PM me and we will discuss arrangements. I'll send you photos of what you are getting, before you say "yes."

2. Once I ship it, simply ask me a trading question in this thread.


First come, first served.

GONE GONE GONE 11:30 AM 12/10

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 kevinkdog   is a Vendor
 
 
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I have an old version of a $795 trading course. I got a ton of value out of it, so I have decided to give it away and share the knowledge.

I learned more from this educator than any other trading educator - by far!

I do not want to disclose the name of the educator, because a revised version of this product is still being sold by him.

This is a CD version, and I believe all of them work (I have not tried recently).

In general, the package is in really good shape.


This can be yours for US residents, basically for free. I only ask for 2 things:

1. You pay shipping. PM me and we will discuss arrangements. I'll send you photos of what you are getting, before you say "yes."

2. Once I ship it, simply ask me a trading question in this thread.


First come, first served.


GONE GONE GONE 3:10 PM 12/9

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kevinkdog View Post
I have an old version of an over $600 trading course. I got a ton of value out of it, so I have decided to give it away and share the knowledge.

I learned more from this educator than any other trading educator - by far!

I do not want to disclose the name of the educator, because a revised version of this product is still being sold by him.

This is a cassette tape version, and I believe all of them work (I have not tried recently).

In general, the package is in really good shape.


This can be yours for US residents, basically for free. I only ask for 2 things:

1. You pay shipping. PM me and we will discuss arrangements. I'll send you photos of what you are getting, before you say "yes."

2. Once I ship it, simply ask me a trading question in this thread.


First come, first served.


Still available (giveaway #2 was shrewdly snatched already)...

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 gdstuart 
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kevinkdog View Post
Still available (giveaway #2 was shrewdly snatched already)...

I'd love to have it, but I'm confused as to whether it's GONE GONE GONE as you posted at 3:10 PM or if it's still available, as you posted at 10:30 PM.

Geoff

 
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gdstuart View Post
I'd love to have it, but I'm confused as to whether it's GONE GONE GONE as you posted at 3:10 PM or if it's still available, as you posted at 10:30 PM.

Geoff

There were 2 of them (different courses). #1 is a cassette version, still available.

#2 is a CD course, that is gone.

PM me if you want #1.


Update - #1 is gone.

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  #355 (permalink)
 fivewhy 
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kevinkdog View Post
I think it is a great idea, but VERY hard thing to do in practice. How would you propose doing it?

Just ideas for discussion . . .

Starting with the basics, if we have the two most basic market regimes, i) momentum/trending vs. ii) rangebound/mean-reverting, you would have to predict whether the given market will be one or the other during the planned time in which you will run the system. Then, you apply the appropriate system to the market. If you predict the regime correctly, you will reduce heavy drawdowns that occur when the system runs during anti-ideal conditions. Reducing drawdowns is the goal. If done correctly, you would also avoid limiting big gains—i.e., maximize upside equity-curve potential while simultaneously reducing downside potential (smoothing without limiting). Typically, reducing heavy drawdowns necessarily also means reducing the upside potential to some extent. However, here, we are offloading the need for robustness, taking it out of the system and putting it on the trader’s discretionary shoulders—which, like leverage, is always a double-edged sword.

Using such a simplistic regime structure such as trending vs. mean-reverting will more likely lead to more loss stemming from the trader’s incorrect prediction than would be mitigated from this whole approach. Other market-regime viewpoints (micro-structure philosophies) may be more fruitful but entail exponentially greater effort to get established.

Before I go further, let me digress and say that we need to know how to measure performance. There are two independent performance measures, and any given daily loss must be attributed to one or the other root cause. The two measures are: i) whether the regime was correctly predicted and ii) whether the system performed as expected over the regime that actually occurred. Losses on individual trades are a part of a correct system correctly running in the correct regime, but a particular day should (generally) not end in a net loss if the correct system runs correctly on the correct regime and there is no sort of unexpected news event. The more you tailor a system to one particular regime, the better it will perform in its ideal regime and the worse it will perform outside its ideal regime. Therefore, either a) the trader is fault for incorrectly predicting the regime, b) the system is at fault for failing to perform in its ideal regime, or c) the correct regime was predicted but some outside impetus caused the regime to change or otherwise act improperly. This is where discretion (and cognitive biases) can really bite you. Not only is the development of the system (as an entire whole) subject to cognitive bias, but the execution (or application) of the system is subject to cognitive bias and the resulting performance metrics can be recorded and interpreted subject to cognitive bias.

One other digression on a defense mechanism to remember, the system should programmatically read the current regime and switch itself off if the ideal regime does not present itself. This would be a backup to supplant the trader’s discretion but the whole point of this approach is to avoid the need for programmatically reading regimes and the inherent lag associate with doing that. The backup should not deploy itself on its own unless the trader is not actively watching over the systems.

Turning back to more-performant market regime structures, one key idea is the “day types” defined under market profile theory or auction theory. It is common for equity index tape readers to go into an RTH session with some notions about what kind of day today will be. They may have more than one possibility and adjust based on what the market tells them during the initial balance period and throughout the day. The same is true for overnight trading hours (where most of the movement in equity-index contracts occurs). The point is, under this approach, the trader would make predictions based on the same skills that every other tape reader employs. The trader would keep track of correct and incorrect regime predictions for each day and also keep track of whether the individual systems performed as expected over the given regime that actually occurred.

However, while targeting between trend vs. rangebound is overly simplistic, targeting a market profile day type maybe overly complicated and lead to similar error in predicting the correct regime. I think the most realistically achievable result is to understand one particular market type and find (or define) your own regimes for that particular market type. You might focus on equity index contracts and have a set of regimes for that. Or a set of regimes for currencies, or energy, or precious metals, or softs, etc. And you could even have a regime for big economic calendar days, if you’re into that sort of thing.

As you said, the devil is in the details. Defining (and refining) the set of market regimes is the core of the task. Once you have a set of regimes that reliably appear on a repeated basis, you have to develop a set of systems to attack inefficiencies in each regime as well as some method to reliably predict the regime early enough to apply the correct system or make a change before too much loss occurs. I must assume that if you can identify repeated regimes (in whatever definitional context) then you would also be able to reasonably predict what regime was about to occur or, alternatively, what is second-most likely to occur. When your first prediction proves to be incorrect, hopefully you can recognize it quickly enough and apply the alternative system appropriate for what actually occurred. Of course, all the normal psychological problems of discretionary trading still apply in this type of approach because you cannot get something (e.g., reduced drawdown) for free.

Of note, I was thinking about this idea from listening to a guy named Xiao Qiao on Ep 153 of the Chat With Traders podcast (https://chatwithtraders.com/ep-153-xiao-qiao/). Basically, Xiao runs a stock scanner to determine whether a particular equity is more mean-reverting or more trending. He said he plots his calculation on a cartesian plane, and the stocks that plot at the bottom right of the grid are one type while the top left of the grid are the other type…everything in other places is more random-walk and not reliably trending or mean-reverting. I actually think he’s using some type of Hurst Exponent calculation based on how he described it. But he calls his scanner his “binoculars” and his systems his “rifles” to go hunting with. Each rifle is either trend-following or mean-reverting. I think this is a sound overall strategy, but my goal with the approach I am describing is to reduce drawdowns in order to maximize leverage (or position sizing), which has more of a place in more-highly leveraged instruments.

Edited to Add: the Linda Raschke webinar (set for 12/12) appears to be touching on topics related to this, and she may (or definitely) have it more figured out than I do right now. https://futures.io/webinars/#registernow

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fivewhy View Post
Just ideas for discussion . . .

Starting with the basics, if we have the two most basic market regimes, i) momentum/trending vs. ii) rangebound/mean-reverting, you would have to predict...

I understand what you are saying, and while it might be worth pursuing, realize how daunting PREDICTING the future really is. That is the core of what you are proposing (you mention "predict" a dozen times in your write up), and that is REALLY HARD.

I do not personally know any successful real money trader who thinks he can predict the market (most believe their success is reacting to the market). I do know plenty of wannabe/paper traders who profess such prediction ability, though. Prediction ability and real money success almost seem to be inversely correlated, in my experience.

Of course, the nice thing is that you can test any prediction idea you have, before going live. You can see if it is statistically valid. If it is, then you can combine it with the trend or mean reverting entry/exit.

I hope the well thought out approach you just detailed works out for you. It is certainly interesting. Just really hard too.

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 tpredictor 
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I would argue that "prediction" is required to make money in markets, regardless of what you call it. If you look at the field of machine learning, it speaks about "prediction". I have wondered why it is not trivial for everyone to see that. It might be because people tend to assume that if one can predict something that it means one must be able to do it absolutely and without variance. But, even with things that are highly deterministic, such as shooting a basketball, there is obviously variance and uncertainty. In any prediction, you have a confidence level (how sure you are), a measure of precision (what your stop needs to be), and an accuracy (a winning percentage). Some scientist speculate that the sense of volition that people have is merely the result of the ability of our brains to predict future states.

When you talk about "predicting the future", this is a more general form then required. Prediction can also be "empirical". Karl Popper's ideas of regarding "falsification" are important when making predictions: namely you must specify the conditions that will falsify your predictions. Perhaps it is the historic tendency among traditional technical analysts to make non-falsifiable predictions, non predictions, is where these "wrong notions" regarding what prediction means. However, in the conversion of a a prediction or idea into an actual trade, there is information loss. Arbitrary elements are introduced. There is more skill required to do this then what one would suspect.

Profitable speculation is the skilled application of trading a prediction with money. Kevin, I agree also many traders think they react to the market but it's nonsense. Whether or not one reacts to the market or not, one must be able to predict it to profit from it. If one reacts to the market, it merely suggest that one is looking for patterns (predictive patterns) in the data. This is the empirical model. It is still prediction. Now, a speculative model or behavioral model probably incorporates both price and other trader behavior. For example, if one sees a big green candle and buys. They might say they are just reacting to the market. However, they are really saying that a big green candle is predictive of a future bullish condition. If one says they react, it might suggest they are using implicit cognition and not conscious prediction. It is still prediction though. Now, perhaps we are reserving "prediction" to refer to future predictions based on "future unknowns" vs "past knowns". However, all future states are unknown. But, going with this idea it would be the form of prediction such as I think a future event will have a certain effect. This is more speculative trading, of course.

I will agree on one point: if you go too speculative then the consistency should be less. However, what I suspect the highest skilled traders do is a combination of empirically based prediction (pattern recognition) and speculative prediction (if then/hypothesis prediction).

Anyway, I never understood where this idea comes in that one can "react" to the market, profit from it, but not be able to predict it. Now, a lot of what I discussed is opinion: but this is not opinion, you must be predicting something better then chance to be profiting from it. It doesn't have to be direction. It could be expectancy.

I also agree it is very, very difficult in practice.

 
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 SMCJB 
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Is identifying a historical statistical bias predicting the future?
Or is assuming that history repeats itself the actual prediction you are making?

 
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 tpredictor 
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@smjc You would just say your pattern X is predictive of future market state Y.

Here is an interesting interview with Michael Harris, where he talks about prediction, markets etc. I found it insightful:
https://www.forbes.com/sites/johnnavin/2016/12/31/why-some-technical-analysis-may-no-longer-be-effective-an-interview-with-michael-harris/

 
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 SMCJB 
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tpredictor View Post
@smjcB You would just say your pattern X is predictive of future market state Y.

So your prediction's fundamental assumption is that history repeats itself.

 
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 tpredictor 
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@SMJCB Sorry, I haven't referred to what I do. I do not fully follow your line of questions. I was just discussing what I thought should be an obvious or self-evident fact. There are many more complex ways of making speculations. For example, one can use comparative reasoning or logic. As an example, we have a few cases where the price of Bitcoin has rallied when a country's currency has had trouble and/or government. One can use such comparative logic to look for countries who might experience currency crisis and buy Bitcoin/short the currency. Of course, this specific example has been a local phenomena and probably not trade-able. We've also seen that developed markets tend to be mean reverting. We can thus speculate or watch for new emerging markets to become more mean reverting. Comparative logic can also be used to reason about, price action or other types of things.

What I think that some of the best speculators do is they identify the factors (real factors) that trader's use to make decisions and form hypothesis about what is likely to happen and then they also understand price patterns (empirical patterns) and combine those insights to produce superior trading. I agree with Kevin that if you go to far to the right-hand side "too speculative" that it becomes more difficult to be consistent. In other cases, great speculators seem to be good at understanding when the market has mispriced an event. In any rate, I agree also it is extremely difficult to profit even from great predictions..

I'd rather shift this focus back to systems which is what Kevin does. I only interjected to provide my opinion, really fact, on what I thought should be obvious.

Anyway, there is also potential value in making your trading system output a prediction, or qualify score, versus a binary signal. Dr. Howard Bandy gave me some insights into this, and I have taken a liking to the concept. Let's just imagine you build your trading system to produce a signal. As part of your optimization process, you will make "local optimal' decisions as you optimize/craft your systems. At any rate, if you take the statistical/empirical view then each trade will have the same expectancy regardless of whether you take one trade or all the trades given the assumption that your system's trades are independent and don't rely on outlier profits. So, let's imagine you have a small account (like most new/small traders). What's likely to happen? You might build a few profitable systems and then lose interest as you won't have capital to deploy to even the profitable systems you have. Now, if you make your systems output predictions versus signals you can sort/rank the various signals and or do other sorts of interesting things. Of course, you need to find/define the quality factor. But, there are many sorts of things one can do with a score or quality factor (or prediction) that cannot be applied to a binary signal alone.

Anyway, Kevin have you ever used this idea of outputting a prediction or confidence value for a system or set of subsytems? I suspect you prefer to keep things simple and trade each system and track it. But, do you see anything wrong with the concept?

 
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  #362 (permalink)
 SMCJB 
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tpredictor View Post
@SMJCB

0 of 2! Oh well.

tpredictor View Post
I'd rather shift this focus back to systems which is what Kevin does. I only interjected to provide my opinion, really fact, on what I thought should be obvious.

I agree. Well on the 1st sentence at least. Lets not hijack Kevin's thread any more.

 
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So your prediction's fundamental assumption is that history repeats itself.

One thing I always tell people is that regardless of your method, style, testing approach (or lack thereof), the market is the ultimate judge.

In the end, whatever process one uses to trade should be validated through real money results. That feedback loop is critical. Listen to the market, and if what one is doing is not working (is not profitable), then that is the cue that you should change something.

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 webradio 
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Kevin, when you give a trade idea a quick first test - as I understood your webinars, you backtest a simpistic "system" with this entry and check the equity curve. What exit(s) do you use for that? Just a timed one or something else?

Maybe you answered it elsewhere - I haven't found it yet.

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webradio View Post
Kevin, when you give a trade idea a quick first test - as I understood your webinars, you backtest a simpistic "system" with this entry and check the equity curve. What exit(s) do you use for that? Just a timed one or something else?

Maybe you answered it elsewhere - I haven't found it yet.

Thanks for the question. I usually use a time based exit (exit after X bars) and maybe a stop loss.

Many times, if this looks good, I actually just keep the simple exits, and not try to improve things with more complicated exits.


I should point out that testing an entry with simple exits makes the assumption that the entry is what really is important, and that is not necessarily the case. Many times the exit is more important, or even the interaction of the entry and exit is what really matters.

These days, I probably do more of entry and exit testing at the same time, because of the interaction effects...

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 webradio 
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kevinkdog View Post
Many times the exit is more important, or even the interaction of the entry and exit is what really matters.

Thanks for your quick reply, Kevin.

As I thought that I learned a lot, I wrote down what I learned and was suprised how short the boil-down about the exits actually was. I'd divide them roughly into
  • hard (initial stops and predefined targets)
  • timed (after x bars; at noon)
  • anxious/greedy (first probitable open; when x% of profit are eaten back)
  • trailing (from parabolic to trend reversal)
Am I missing something big in this area? Would you add any class or a representative exemplar to my list?

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webradio View Post
Thanks for your quick reply, Kevin.

As I thought that I learned a lot, I wrote down what I learned and was suprised how short the boil-down about the exits actually was. I'd divide them roughly into
  • hard (initial stops and predefined targets)
  • timed (after x bars; at noon)
  • anxious/greedy (first probitable open; when x% of profit are eaten back)
  • trailing (from parabolic to trend reversal)
Am I missing something big in this area? Would you add any class or a representative exemplar to my list?

reverse entry signals (exit short and then go long with same signal)

using different "entry signal" as exit (take something you think would be a nice entry, but just use it for an exit)

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 phantomtrader 
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Hi Kevin: I have a general question about backtesting on different bar types. Let's say I run a system in real time on a renko bar type for a week (I understand that a week isn't statistically significant - it's just to get a general idea). At the end of the week I compare the results to Strategy Analyzer simulator results. I then calculate the slippage between the simulated and live results. In order to use the slippage factor, I add/deduct the slippage average to the profit target/stop loss. Do you see any problem with that going forward? For instance, on the UB if I have a slippage average of 2 ticks and my profit target is 6 ticks, I would reduce my profit target to 4 ticks for live trading. Stop loss is always 4 ticks. I felt this was a more accurate way to calculate slippage rather than using the slippage from the Historical Fill Processing option. I've traded live using this method and it seems to be okay as long as I get filled at the entry price (this is a problem sometimes in bonds).
I appreciate your input on this. Thanks.

Also, I execute manually. This is not intended for automation. The goal is to estimate the most likely successful target for this system.

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phantomtrader View Post
Hi Kevin: I have a general question about backtesting on different bar types. Let's say I run a system in real time on a renko bar type for a week (I understand that a week isn't statistically significant - it's just to get a general idea). At the end of the week I compare the results to Strategy Analyzer simulator results. I then calculate the slippage between the simulated and live results. In order to use the slippage factor, I add/deduct the slippage average to the profit target/stop loss. Do you see any problem with that going forward? For instance, on the UB if I have a slippage average of 2 ticks and my profit target is 6 ticks, I would reduce my profit target to 4 ticks for live trading. Stop loss is always 4 ticks. I felt this was a more accurate way to calculate slippage rather than using the slippage from the Historical Fill Processing option. I've traded live using this method and it seems to be okay as long as I get filled at the entry price (this is a problem sometimes in bonds).
I appreciate your input on this. Thanks.

Also, I execute manually. This is not intended for automation. The goal is to estimate the most likely successful target for this system.

Thanks for the question.

Hopefully by "live" you mean real money trading, I will assume that is the case.

I am a bit confused by what you are doing, maybe you can explain with an example. Here is an example of how I'd calculate it:

1 trade

Backtest Report says I bought at 163 19/32 and sold at 163 25/32

Actual real money account says I bought at 163 19/32 and sold at 163 24/32

I would have 0 ticks slippage on entry, 1 tick slippage on exit.

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  #370 (permalink)
 phantomtrader 
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kevinkdog View Post
Thanks for the question.

Hopefully by "live" you mean real money trading, I will assume that is the case.

I am a bit confused by what you are doing, maybe you can explain with an example. Here is an example of how I'd calculate it:

1 trade

Backtest Report says I bought at 163 19/32 and sold at 163 25/32

Actual real money account says I bought at 163 19/32 and sold at 163 24/32

I would have 0 ticks slippage on entry, 1 tick slippage on exit.

Thanks for the prompt reply. I trade Jigsaw DOM and order flow but I'm experimenting with strategy development in Ninja.

When I said "Live", what I meant was letting the strategy run in real time to see what the difference was between live data and backtest data. I also test it in replay. The replay data matches the real time data very well. I understand that this doesn't take into account fills, etc. The strategy executes at market and exits on a limit order.

My goal for doing this exercise was to normalize the backtest data so that I know where I have to make adjustments for real time trading. The backtest engine in Ninja has a lot of inherent problems making the results unreliable. IMO it's really useless. But my thought was that if I could normalize the data the same way you do in simple normalization statistics, I could factor in the adjusted values when I run a test in replay. Then do manual walk forward testing every week to see how the real time data holds up to the replay data where the strategy would include the factor as slippage.

I've attached a couple of jpgs as examples. The first one has two charts: The one on top is backtest from a chart - not Strategy Analyzer - for today's ZB session. The chart below is the replay data for the same. The second jpg is replay data for the strategy with a 2 tick slippage included which turns out to match the replay data, at least for today.

After testing different sets of profit targets/stop losses, the results suggested that 4/4 were the best inputs to use - i.e. most probable successful profit target with a matching stop loss.

I just don't trust the backtest engine. That's why I came up with this scheme to see if I could come up with a valid, reliable factor to use with an inaccurate backtesting engine. I still have to calculate the number of outliers over the range of available data.

I'm really just trying to work with a defective backtest engine to get reasonably reliable results.

I know you use TradeStation. I can program in EL. I switched to Ninja because I liked the graphics. I'm not that great at programming in Ninja though. Trading order flow I really didn't need TradeStation any more.

Anyway, just wanted your opinion on this. I don't want to waste a lot of time with Ninja programming if I can't acquire reliable results.

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 amoeba 
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phantomtrader View Post
Thanks for the prompt reply. I trade Jigsaw DOM and order flow but I'm experimenting with strategy development in Ninja.
.........

Not to hijack Kevin's response, I would be very careful using any renko bar for reliable backtesting (probably best not to at all). If you have a look at your two images you can see a part of the reason, the backtested entries are at prices that were never available, then look at the replay, all entries are different. This is not slippage but because renko bars falsely report the opening price of the bar.

If you are using Ninja and want to use renko bars, grab the Better Renko bar from the downloads section on this site, it uses the correct bar opening.

If you are using Ninja 8, you can also try enabling Tick Replay on your backtests (needs to be enabled from the Tools menu).

I found the better option was to break down my strategy logic so I could replicate it on any bar types within reason.

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Thanks for the prompt reply. I trade Jigsaw DOM and order flow but I'm experimenting with strategy development in Ninja.

When I said "Live", what I meant was letting the strategy run in real time to see what the difference was between live data and backtest data. I also test it in replay. The replay data matches the real time data very well. I understand that this doesn't take into account fills, etc. The strategy executes at market and exits on a limit order.

My goal for doing this exercise was to normalize the backtest data so that I know where I have to make adjustments for real time trading. The backtest engine in Ninja has a lot of inherent problems making the results unreliable. IMO it's really useless. But my thought was that if I could normalize the data the same way you do in simple normalization statistics, I could factor in the adjusted values when I run a test in replay. Then do manual walk forward testing every week to see how the real time data holds up to the replay data where the strategy would include the factor as slippage.

I've attached a couple of jpgs as examples. The first one has two charts: The one on top is backtest from a chart - not Strategy Analyzer - for today's ZB session. The chart below is the replay data for the same. The second jpg is replay data for the strategy with a 2 tick slippage included which turns out to match the replay data, at least for today.

After testing different sets of profit targets/stop losses, the results suggested that 4/4 were the best inputs to use - i.e. most probable successful profit target with a matching stop loss.

I just don't trust the backtest engine. That's why I came up with this scheme to see if I could come up with a valid, reliable factor to use with an inaccurate backtesting engine. I still have to calculate the number of outliers over the range of available data.

I'm really just trying to work with a defective backtest engine to get reasonably reliable results.

I know you use TradeStation. I can program in EL. I switched to Ninja because I liked the graphics. I'm not that great at programming in Ninja though. Trading order flow I really didn't need TradeStation any more.

Anyway, just wanted your opinion on this. I don't want to waste a lot of time with Ninja programming if I can't acquire reliable results.

Thanks for the explanation. You mentioned earlier that you are using Renko bars. I know Ninja is not good with backtesting this, and I never test these bars with Tradestation either. I only test time based bars.

One concern I'd have with what you are doing is that you are going to have very short backtests - I like having 5-10 years if I can.

It seems like what you are doing makes sense, at least at a high level, but I'd have to spend a lot of time looking at the details of this to make sure you are doing it correctly.

The best test is to proceed with what you are doing, and at some point verify it with a real money test. YTou should quickly see if your approach is correct.

Sorry I can;t be of more help, but you are delving into waters I have never stuck a tow in.

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amoeba View Post
Not to hijack Kevin's response, I would be very careful using any renko bar for reliable backtesting (probably best not to at all). If you have a look at your two images you can see a part of the reason, the backtested entries are at prices that were never available, then look at the replay, all entries are different. This is not slippage but because renko bars falsely report the opening price of the bar.

If you are using Ninja and want to use renko bars, grab the Better Renko bar from the downloads section on this site, it uses the correct bar opening.

If you are using Ninja 8, you can also try enabling Tick Replay on your backtests (needs to be enabled from the Tools menu).

I found the better option was to break down my strategy logic so I could replicate it on any bar types within reason.

Beat me to it, good advice!

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 phantomtrader 
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amoeba View Post
Not to hijack Kevin's response, I would be very careful using any renko bar for reliable backtesting (probably best not to at all). If you have a look at your two images you can see a part of the reason, the backtested entries are at prices that were never available, then look at the replay, all entries are different. This is not slippage but because renko bars falsely report the opening price of the bar.

If you are using Ninja and want to use renko bars, grab the Better Renko bar from the downloads section on this site, it uses the correct bar opening.

If you are using Ninja 8, you can also try enabling Tick Replay on your backtests (needs to be enabled from the Tools menu).

I found the better option was to break down my strategy logic so I could replicate it on any bar types within reason.

Thanks for the input. Yes, you're right about testing with renko bars. I'm not looking to automate the strategy. I simply wanted to see if there was a way to calculate an error factor that would work with this set. The problem with Better Renko is that the bars pack too much price action in a single bar. Doesn't work with the strategy I wrote. But thanks - I appreciate your thoughts.

 
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 phantomtrader 
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kevinkdog View Post
Thanks for the explanation. You mentioned earlier that you are using Renko bars. I know Ninja is not good with backtesting this, and I never test these bars with Tradestation either. I only test time based bars.

One concern I'd have with what you are doing is that you are going to have very short backtests - I like having 5-10 years if I can.

It seems like what you are doing makes sense, at least at a high level, but I'd have to spend a lot of time looking at the details of this to make sure you are doing it correctly.

The best test is to proceed with what you are doing, and at some point verify it with a real money test. YTou should quickly see if your approach is correct.

Sorry I can;t be of more help, but you are delving into waters I have never stuck a tow in.

No problem - I appreciate your input. As I mentioned in response to Amoeba, the better renko bars pack too much price action into a single bar. I use the smallest setting on the renko bar, the rationale being that the strategy could capitalize on the "smoothness" of renko, but not have so much price action in a single bar to deal with. Since the strategy only looks at 2 parameters, it made sense to put as little information in a single bar as possible.

Actually, as for real money test, it turns out that many of my Jigsaw setups execute about the same way as the strategy. But that's not a reliable metric for testing as I would have to take every single trade to do even a minimal calculation. In any case, it could be useful as an ancillary indicator for order flow trading.

Thanks again for your input - greatly appreciated.

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 g94expy 
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Hello Kevin, I had watched some of your webinar and know that you self learn the programming code and build the algo yourselve.

Have you have any working exp as a pro trader in the past? Do you think someone who didnt worked aa trader can also win the market?

How do you think the programming is important in nowaday market? If I can trade well, does it mean I can giveup the programming skill? The reason I am asking, I try to understand where should I put the priority.

(I had 10years trading exp in stock market but didnt lose and didnt make profit....)

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g94expy View Post
Hello Kevin, I had watched some of your webinar and know that you self learn the programming code and build the algo yourselve.

Have you have any working exp as a pro trader in the past? Do you think someone who didnt worked aa trader can also win the market?

How do you think the programming is important in nowaday market? If I can trade well, does it mean I can giveup the programming skill? The reason I am asking, I try to understand where should I put the priority.

(I had 10years trading exp in stock market but didnt lose and didnt make profit....)

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Hi, thanks for the question.

I have never worked for a trading firm, I do think people who did not work as traders can win in the market.

I think programming is important if you are going to be creating strategies, especially to run automated. If you can trade well without programming - maybe by watching the screen for 10 hours per day - if that works I say go for it.

I can't tell you where to put the priority, because a lot of that depends on you. I have seen fail at algo trading, and people fail at screen trading. And vice versa. There is no set way to succeed.

Hope this helps!

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 g94expy 
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Thanks. So you will mainly based on computer signal to make trading decision? Or more on price action or any other trading indicator such as RSI MACD ?

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Thanks. So you will mainly based on computer signal to make trading decision? Or more on price action or any other trading indicator such as RSI MACD ?

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I test patterns, indicators, statistical things, combinations of all these. Doesn't really matter to me. What DOES matter is that I evaluate the results based on an objective set of criteria to say if the strategy is good or not.

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 sienna 
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Hi Kevin,

For developing and testing strategies and to eliminate the need for coding, have you looked at Sharkindicators? I am not affiliated with them and have not as yet bought their product, just watched a few webinars. Would you consider Sharkindicators? If not why? I know that they are tied to Ninjatrader, which is different to your areas of expertise (easy language).

Just curious. I write as someone who does not really like coding, and am not trained in coding. Thought maybe this would get me around that issue. Any hidden assumptions or issues, which might give me grief?

Associated question: Could you comment on the reliability of the backtest results run through Ninjatrader?
Many thanks for your expert opinion.

Sienna

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sienna View Post
Hi Kevin,

For developing and testing strategies and to eliminate the need for coding, have you looked at Sharkindicators? I am not affiliated with them and have not as yet bought their product, just watched a few webinars. Would you consider Sharkindicators? If not why? I know that they are tied to Ninjatrader, which is different to your areas of expertise (easy language).

Just curious. I write as someone who does not really like coding, and am not trained in coding. Thought maybe this would get me around that issue. Any hidden assumptions or issues, which might give me grief?

Associated question: Could you comment on the reliability of the backtest results run through Ninjatrader?
Many thanks for your expert opinion.

Sienna

Thanks for the questions.

I have never used Sharkindicators, and last time I checked, I understood it could not be used to do optimizations, which would be a problem for many situations. Maybe it has changed since then.

I also do not use Ninja for strategy development, so for me it is not an option.

If you do not like coding, life does get tougher, no matter what platform you use.

Right now, I am using a visual tool (Trade View) to create code for MT4. It is pretty slick, but even so, I find myself visually "coding" - I am still figuring out logic blocks (If...then), branches, etc.

For backtesting, I do not use Ninja, so I cannot vouch for its reliability. I will say that, regardless of the platform, it is easy to trick and cheat the backtest engine to give ridiculous results.

Hope this helps!

Kevin

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 trendisyourfriend 
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kevinkdog View Post
...
Right now, I am using a visual tool (TradingView) to create code for MT4. It is pretty slick, but even so, I find myself visually "coding" - I am still figuring out logic blocks (If...then), branches, etc.
...

Kevin

Hi kevinkdog,

What do you mean exactly? I thought Tradingview was a web platform only. Do you mean that you can use it to generate metatrader 4 compatible code? Thanks

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Hi kevinkdog,

What do you mean exactly? I thought Tradingview was a web platform only. Do you mean that you can use it to generate metatrader 4 compatible code? Thanks

Sorry, I meant Trade View Investments: https://www.tradeview.com.au/

I will edit my earlier post...

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 gloricle 
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Hi Kevin, what sort of backtesting process do you use? Do you use the Strategy Tester in MT4 or some other program?


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Hi Kevin, what sort of backtesting process do you use? Do you use the Strategy Tester in MT4 or some other program?


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Thanks for the question. I primarily use Tradestation, so I incorporate their backtesting module in what I do. If you are using MT4, you could use their Strategy Tester.

Two keys:

1. Whatever software you use to help you test, you should know it well enough to fool it. That is, can you create a strategy that exploits the strategy engine and gives ridiculous results? If you know ways to fool it, you are less likely to be fooled by unrealistic results. Limit order touch fills are a good example in most software platforms.

2. Running through a platform's strategy test engine is only a part of what I do. I also have quite a few other steps to help validate a strategy. You can likely find some info in old futures.io webinars I have done.

Thanks!

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 sixtyseven 
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Hi Kevin,

Assume when testing insample you find something that looks good. You then decide to try an additional filter, which drops the sample size, but turns it into something much better (while the filter works with a range of nearest neighbours - i.e it's not a complete fluke).

Would you cross your fingers and hoped this extra filter worked out of sample?

Would you test both out of sample, and trade which ever stacked up best?

Or would you test only the system with more signals, less parameters/filters and fine looking metrics - with the view to only looking at the out of sample once?

Thanks

 
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Hi Kevin,

Assume when testing insample you find something that looks good. You then decide to try an additional filter, which drops the sample size, but turns it into something much better (while the filter works with a range of nearest neighbours - i.e it's not a complete fluke).

Would you cross your fingers and hoped this extra filter worked out of sample?

Would you test both out of sample, and trade which ever stacked up best?

Or would you test only the system with more signals, less parameters/filters and fine looking metrics - with the view to only looking at the out of sample once?

Thanks

Thanks for the question.

My development process is different than the process you describe, so I can't say I'd do what you are describing.

Here is what I do, in relation to your questions:

1. If during my initial testing, I find something that passes my criteria, I usually stop there and move to the next step. I don't add filters etc in the hopes of making it even better.

2. If during my initial testing, I find something that does NOT pass my criteria, I usually add filters etc and see if I can make it pass my criteria.

So, the general philosophy I have is: make the strategy as simple as possible, but not so simple it does not work.


Then, when I move on to the next step, walkforward (out of sample) testing, that is really a one shot deal. The strategy either passes, or it does not. Running OOS, not liking the results, going and tweaking the strategy, then examining the OOS results, is very dangerous. I try to avoid this when possible.

One more thing: if you do run 2 OOS tests, and pick the best one, you've just optimized. Generally, not good to do.

Hope this helps!

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 sixtyseven 
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kevinkdog View Post

1. If during my initial testing, I find something that passes my criteria, I usually stop there and move to the next step. I don't add filters etc in the hopes of making it even better.

Thanks for that Kevin. Really useful.

I really like the idea about having a base criteria and stopping there. You've given me some good ideas to improve my process.

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 Fugitive69 
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It's interesting to evaluate some of the algo system data out there and the numbers they produce. As a gross generalization, a typical system might have a good JAN & FEB, then not so great the next two following months, but back in the black the months thereafter. Stepping back and taking a yearly view the overall results might average say a 19% return. Well, that's not too shabby when compared to investing in stocks, bonds, mutual funds, etc.

However, from a manual trader's point of view those two down months would be cause to stop trading altogether and begin some serious self-evaluation, most likely heavily dosed with a prescription of bourbon and water.

Which begs the question, "what are your expectations"? From my own perspective I expect one thing from my manual trading and quite another thing altogether from an algo system. Why then do I keep trying to develop automated systems that mimic my manual trading?

Aren't they two different animals completely with two different expectations?

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Fugitive69 View Post
It's interesting to evaluate some of the algo system data out there and the numbers they produce. As a gross generalization, a typical system might have a good JAN & FEB, then not so great the next two following months, but back in the black the months thereafter. Stepping back and taking a yearly view the overall results might average say a 19% return. Well, that's not too shabby when compared to investing in stocks, bonds, mutual funds, etc.

However, from a manual trader's point of view those two down months would be cause to stop trading altogether and begin some serious self-evaluation, most likely heavily dosed with a prescription of bourbon and water.

Which begs the question, "what are your expectations"? From my own perspective I expect one thing from my manual trading and quite another thing altogether from an algo system. Why then do I keep trying to develop automated systems that mimic my manual trading?

Aren't they two different animals completely with two different expectations?

Thanks for the comment. If one of your goals with an algo is "make money every day/week/month/year" you can simply make that a requirement of anything you build, just like you'd have goals for certain returns, drawdowns, trades per year, etc.

Of course, you may not be able to hit that goal, or any of your other goals, with your strategy. And many times the goals may conflict, forcing you to choose one over the over (like maybe some losing months are better in return for some big winning months).

Thanks!

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 Fugitive69 
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kevinkdog View Post
Thanks for the comment. If one of your goals with an algo is "make money every day/week/month/year" you can simply make that a requirement of anything you build, just like you'd have goals for certain returns, drawdowns, trades per year, etc.

Of course, you may not be able to hit that goal, or any of your other goals, with your strategy. And many times the goals may conflict, forcing you to choose one over the over (like maybe some losing months are better in return for some big winning months).

Thanks!

Great information @kevinkdog, thanks.

I never really thought about an algo in those terms before - however I'm a big believer in the backwards forward principle. Always start at the end and work back towards the beginning.

Up until now, the trade exit always represented the end point for me. But thanks to your advice "the end" should really be represented by the goals as you mentioned above. Sure makes good sense to me.

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 phantomtrader 
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Is it possible to include order flow data from a platform like Jigsaw in a strategy? Thanks.

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Is it possible to include order flow data from a platform like Jigsaw in a strategy? Thanks.

Thanks for the question.

Never tried, but what I do is based on 5-10 years of historical data, and I do not believe you could have order flow historical data going back that far. Probably best to ask your question in an order flow thread.

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 phantomtrader 
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Thanks, Kevin.

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 Blash 
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phantomtrader View Post
Is it possible to include order flow data from a platform like Jigsaw in a strategy? Thanks.



There is a lot you can do with Order Flow by using Cumulative Delta or per bar Delta for sure. Getting Jigsaw to play nice might be quite difficult.

Ron


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 Blash 
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Kevin

I’m about to jump into your book, Kindle edition. Thanks for taking all the time and hard work writing it. Looking forward to it.

I too started in paper charts back in the late 90’s calling my broker for quotes etc pencil and ruler in hand. So thankful for our amazing technology these days....lol

Ron


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 phantomtrader 
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Blash View Post
There is a lot you can do with Order Flow by using Cumulative Delta or per bar Delta for sure. Getting Jigsaw to play nice might be quite difficult.

Ron


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Yes, I agree. I use ninZaVolumeDelta which I find extremely helpful. However, I run into the same problem - can't access the output for testing. I do a lot of research - not necessarily to develop a strategy, but just asking questions about the data. I think NT8 has a cumulative delta whose data can be downloaded - not sure. I might take a look at that.
Thanks for the suggestion.

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 Blash 
Market Chamois
Chicago, IL
 
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phantomtrader View Post
Yes, I agree. I use ninZaVolumeDelta which I find extremely helpful. However, I run into the same problem - can't access the output for testing. I do a lot of research - not necessarily to develop a strategy, but just asking questions about the data. I think NT8 has a cumulative delta whose data can be downloaded - not sure. I might take a look at that.

Thanks for the suggestion.



Yeah Ninja’s Order Flow Cumulative Delta can be loaded into Excel, for example, very easily with StreamWriter and a little messing around. If you would like my StreamWriter just let me know.

Ron


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...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
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 phantomtrader 
Reno, Nevada
 
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Blash View Post
Yeah Ninja’s Order Flow Cumulative Delta can be loaded into Excel, for example, very easily with StreamWriter and a little messing around. If you would like my StreamWriter just let me know.

Ron


Sent from my iPhone using futures.io

What is StreamWriter? I use an export function that I developed myself - just exports to Excel.

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 Blash 
Market Chamois
Chicago, IL
 
Experience: None
Platform: NT8,NT7,TWS
Broker: InteractiveBrokers, S5T, IQFeed
Trading: The one I'm creating in the present....Index Futures mini/micro, ZF
 
Blash's Avatar
 
Posts: 2,285 since Nov 2011
Thanks: 7,247 given, 4,434 received


phantomtrader View Post
What is StreamWriter? I use an export function that I developed myself - just exports to Excel.



C# code one can use to export. I have it export a bunch of stuff and you can just add on more..... whatever you like.

Ron


Sent from my iPhone using futures.io

...My calamity is My providence, outwardly it is fire and vengeance, but inwardly it is light and mercy...
The steed of this Valley is pain; and if there be no pain this journey will never end.
Buy Low And Sell High (read left to right or right to left....lol)
Follow me on Twitter Visit my futures io Trade Journal

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