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

  #411 (permalink)
Market Wizard
Cleveland Ohio/United States
 
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Question Via PM

This came in via PM, but I felt it general enough to share with everyone... Thanks for the questions!


As far as you can estimate, to create genuinely profitable stragies using the in built Strategy Builder on NinjaTrader8?

I have never used it, so I cannot say. But in general, the built in features of any platform allow you to create strategies. And create nice backtests. But are they any good - will they work going forward? That is the million dollar question. My feeling is that most trading software actually lures you into some bad habits - just look how easy it is to optimize a variable, add a new rule, tweak that backtest, etc. And that leads to misleading backtests.

With that in mind, I do think you can build good strategies, but you really need a solid development process that helps you avoid the pitfalls of backtesting. That is not easy.


Do you find successful intra day strategies almost always require higher timeframe analysis of some kind to generate profit?

My experience is that intraday strategies are hard to develop, period. Maybe having higher timeframes help, I have not thoroughly researched this.


Can you put your finger on an average number of indicators/conditions upon which your strategies are built, with emphasis on the intra day strategies?

My experience with any strategy is that the simpler the better. Most people fall into a trap where they keep adding rules to make the backtest better. That rarely works. Keep it simple. Try only a few conditions, maybe 1 or 2 for entry, and same for exit.

Here is a good article I wrote a few years back describing what not to do: Don't build a better backtest | Futures Magazine

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #412 (permalink)
Elite Member
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Hi Kevin,

If you were developing on ES, would you consider the in-sample dates as in-sample, or OOS when you came to test that strategy on other US indices?

As always, thanks for your time.

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  #413 (permalink)
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sixtyseven View Post
Hi Kevin,

If you were developing on ES, would you consider the in-sample dates as in-sample, or OOS when you came to test that strategy on other US indices?

As always, thanks for your time.

Since I do walkforward, parameters usually change enough that I can consider the test valid for each.

So if I run an ES strategy with walkforward, and then an RTY strategy with walkforward, I'd consider them 2 separate tests.

Without walkforward, that second market test is not really OOS, but it is not really IS either - it is somewhere in between...

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  #414 (permalink)
Trading Apprentice
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Hey Kevin,

I was hoping you might be able to shed some light on the correct way to initially test a strategy in your view.

Would it make sense to take a 4 year historical period as in sample data, optimize to seek out the best parameters during this period, without over-optimizing of course, and then move forward to Walk Forward Optimization?

How do you ensure you aren't over optimizing, is it more of a feel thing rather than exact science?

How would you go about the Walk Foward Optimization in terms of size of data set it's being tested on?

Any fedback highly appreciated as always!

Thanks.

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  #415 (permalink)
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WhatIfGod View Post
Hey Kevin,

I was hoping you might be able to shed some light on the correct way to initially test a strategy in your view.

Would it make sense to take a 4 year historical period as in sample data, optimize to seek out the best parameters during this period, without over-optimizing of course, and then move forward to Walk Forward Optimization?

How do you ensure you aren't over optimizing, is it more of a feel thing rather than exact science?

How would you go about the Walk Foward Optimization in terms of size of data set it's being tested on?

Any fedback highly appreciated as always!

Thanks.

Thanks for the questions. These are complicated questions, way too much to put in a thread post.

A few years ago, I did an Elite member webinar where I discussed a lot of this.

Also, my first book "Building Winning Algorithmic Trading Systems" also covers your questions in much more detail. You probably can find a copy at a library, or maybe online with a free trial at overdrive.com

Sorry I can't give short and sweet answers here. You have asked some great questions!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #416 (permalink)
Market Wizard
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Shiny Pennies

You may have heard about a big option seller going belly up last week because of the rise in Natural Gas.

Regardless of your style of trading, there are lessons for all of us in that disaster.

I wrote a short article about it for my friend and trader Adam Grimes: https://adamhgrimes.com/guest-post-ohhh-is-that-a-shiny-penny-on-the-ground/

Please feel free to leave comments about it!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #417 (permalink)
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WhatIfGod View Post
Hey Kevin,

I was hoping you might be able to shed some light on the correct way to initially test a strategy in your view.

Would it make sense to take a 4 year historical period as in sample data, optimize to seek out the best parameters during this period, without over-optimizing of course, and then move forward to Walk Forward Optimization?

How do you ensure you aren't over optimizing, is it more of a feel thing rather than exact science?

How would you go about the Walk Foward Optimization in terms of size of data set it's being tested on?

Any fedback highly appreciated as always!

Thanks.


This paper on System Parameter Permutation might give some insight in regards to Optimization .

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2423187

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  #418 (permalink)
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kevinkdog View Post
Thanks for the question. Not sure if my algo trading day is typical of what others do, but here it is:

1. Make sure all strategies are running, and are in sync - live accounts versus strategy positions. I usually check this multiple time a day, and evening.

If you don't mind me asking, is this precautionary or did you have to deal with strategies not running or doing crazy stuff in the past?

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  #419 (permalink)
Market Wizard
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skoa View Post
If you don't mind me asking, is this precautionary or did you have to deal with strategies not running or doing crazy stuff in the past?

Thanks for the question.

Strategies can and do go out of sync, so you have to be prepared to fix and adjust. Sometimes it is a code issue, sometimes a data issue, sometimes exchange issue, sometimes internet issue, etc. The list is long. One thing algo trading is NOT: it is NOT unattended trading. Even hedge funds, etc have people monitoring positions.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #420 (permalink)
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Hi Kevin,

I had a quick question from your book; for the Euro strategy example, you had allowed yourself one month to develop a strategy based on the defined goals.

I was wondering how much time it took you to come to the final strategy and if you went through other ideas before the final published version?

Cheers!
Michael

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