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How do you manage and pick strategies for your portfolio?
You may check out the following and work through some of the videos in there Homepage which you will find in "YouTube" under "Darwinex". To give just one example:
8 Ways to Improve your Backtesting and Optimization Process | Trading Strategy Development
They have also videos about what @kremat0r mentioned (System Quality Number)
By the way: I am not affiliated nor do I have any kind of connection to this company.
I know that guy but what he has discussed about portfolios is quite difficult and time consuming to replicate like the MPT or SQN number.
What I do at the moment is: -I have a script that prints the profit factor, netprofit/maxDD and %P values of the last around 30 trades of the systems I have.
-Then I make a ranking and exclude the trading systems that have lower profit factor of their in sample profit factor.
-After filtering for profit factors, I remove the systems that have lower %P as I cannot bare lower %P.
-Then I start to compose the portfolio with different futures, type of strategies Swing or Intraday, and timeframe with the strategies that has the highest PF and Netprofit/MaxDD
-Rinse and repeat every saturday.
why 30 trades? Why not 60? What about one month of trades? What about two months?
I suggest to adopt a walk-forward test of your assumptions. To be more specific, since you decided for a weekly assessment:
- go back in the past, say, 12 months, and create a un-managed trade values spreadsheet
- elaborate your metrics (PF, NP/DD, %P) every week
- decide for a selection policy and apply it to the incoming week. Then superimpose a binary mask [0,1] to the un-managed trade values so to obtain a managed trade values spreadsheet
- elaborate the managed equity curve of each strategy and of the resulting portfolio
This is the only way to see if your assumptions could be (could be, not are) solid. Traps and issues of back testing are again just waiting for you there but a walk-forward approach could be a reasonable approach to mitigate this risk.
I created my portfolio manager with a combination of strategy and python scripts, tools I'm still working on after 2 years of developing. You will find that there are a lot of freedom degrees to manage, not only the metric(s) to choose and/or combine but also the sampling window (static/dynamic) and many other stuff.
30 trades cause a couple of good italian traders talked about this (one of them made also an in deepth analisys with backtesting), to refer to the last 30 trades to evaluate the decadence of performances of a trading system. I know I should do my own diligence testing like you also advised. But I prefer at the moment to try myself on a small account live the way I designed before.
And I know there are many ways to approach this, that is why I think it is interesting to see also what other peoples are doing while approaching trading systems portfolio management and discuss about the topic.
I check every saturday cause I have Intraday and Multyday TS, so for intraday TS I think is a good time window for checking performances.
If you think about it, having a number of last trades to check makes sense if you have TS with different trading frequency.
I also talked with chatgpt about this topic, will post soon what chatgpt told me.
