All posts by System Trader Success Contributor

Sharpe Ratio – the right answer to the wrong question?

TradingEdgeVisualiser

Sharpe was the right answer First, let’s start with what Sharpe does well. There are two things it does well: Cross-asset unified measure: we all know that the most important component in alpha generation is asset allocation. Now, the difficulty is to have a single measure of risk-adjusted measure of alpha. This is where Sharpe […]

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Avoiding Stock Market Crashes with the Hi-Lo Index of the S&P500

This daily indicator is calculated as the ratio of the number of S&P500 stocks that have reached new 3-month-highs minus those that have reached new 3-month-lows, divided 500. Exiting and entering the stock market according the indicator’s signals would have avoided major drawdowns of the market during the backtest period from Jan-2000 to Aug-2015. Switching according to the signals […]

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Maximum Loss Stops: Do you really need them?

Cartoon Man Stop Sign

We hear it all the time. “You must use stops.” And most of us use them. But do you know how they change your strategy results? Are they improving your results by giving you higher CAR or lower maximum drawdown? Recently I was speaking with a reader about this topic and he insisted that you […]

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What is the difference between Relative Strength and Trend Following ?

The Different

After publishing our Two Centuries of Momentum article last week, we received a number of requests for our thoughts on the recent underperformance of multi-asset, relative strength portfolios Now, we tend to fall more on the trend following side of momentum.  So we wanted to spend some time talking about the difference between relative strength and […]

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A Flexible Trailing Stop Function

The Anatomy of a Stop A stop can be defined by specifying four basic parameters, illustrated in Figure 1 below: Price Reference: The price from which the stop is offset (white line) to create a stop value. Stop Offset: The distance from the Price Reference to the stop value. Price Trigger: The value of price […]

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Stops – When Not to Use Them

Cartoon Man Stop Sign

Using a stop on a position is a very popular risk management technique used by traders. My research and experience has led me to believe they are appropriate for some – but not all – types of trades. Today I will discuss when I believe they aren’t appropriate. In Larry Connors’ new book, “Short-term Trading […]

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Part 2: Using a Self-Similarity Metric with Intraday Data to Define Market Regimes

buy and sell signals

The Self-Similarity metric has been a popular series. Recently the original post was shared on Jeff Swanson’s popular site, System Trader Success which covers a wide variety of thought-provoking articles on trading system development and is worth reading. Jeff has also posted some TradeStation codes for the indicator which some readers may find valuable. In […]

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9 Mistakes Quants Make that Cause Backtests to Lie

              “I’ve never seen a bad backtest” — Dimitris Melas, head of research at MSCI. About backtests A backtest is a simulation of a trading strategy used to evaluate how effective the strategy might have been if it was traded historically. Backtestesting is used by hedge funds and other […]

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Are your backtest results fooling you?

Fool

Have you ever started trading a strategy that performs well in the backtests but delivers a very different result when you begin trading it with real money? Could your backtest reports be fooling you by indicating a strategy is great but really only showing you part of the overall picture? How do you give yourself a better chance […]

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Are you losing when you should be winning? Here’s something you might be missing

Most people think about where to get into and out of positions. Nearly all traders know how important it is to follow their rules, and the majority of them always work toward being more disciplined. These are important pieces of a successful investment strategy, and most traders work on these things. But there’s one thing […]

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