Tag Archives for " Backtesting "

Broken Strategy or Market Change: Investigating Underperformance

Broken Strategy

I recently had someone email me about the performance of a strategy I created back in late 2005/early 2006 and traded for a few years. I remember the strategy being a daily mean reversion set up with an intraday pullback entry. I figured it probably had not done well over the last decade. I stopped […]

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Finding Out What Works, And What Doesn’t Work

Many traders who try system trading have previously had difficulty at discretionary or manual trading. Most of these folks eventually recognize the benefit of trading a system with well defined rules – a system that has performed well in the past. It is nice to know a trading approach has historically worked, but as with […]

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Secret Weapon of Stock & ETF System Development

This is the second article in a two-part series where I discuss the top three pitfalls when backtesting Stock & ETF trading systems. In the first article, The Top Three Pitfalls of Stock and ETF System Development, I highlighted the top three issues system developers face. In this article, I’m going to show you how […]

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The Top Three Pitfalls of Stock And ETF System Development

During my nearly 25 years of experience in the trading business, I have talked to many traders about system development. Futures trading systems and back-adjusted contacts are fairly well understood. Recent issues with the pits closing and markets being only electronic have created some issues but it’s still relatively straight forward to design a trading […]

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In-Sample and Out-Of-Sample Testing

I am frequently asked if I do out-of-sample testing. The short answer is not always and when I do, it is not how most people do the test. There are lots of considerations and pitfalls to avoid when doing out-of-sample testing. Out-of-sample testing is not the panacea it is made out to be. There are […]

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Back to Basics Part 3: Backtesting in Algorithmic Trading

Nearly all research related to algorithmic trading is empirical in nature. That is, it is based on observations and experience. This is in contrast with theoretical research which is based on assumptions, logic, and a mathematical framework. Often, we start with a theoretical approach (for example, a time-series model that we assume describes the process […]

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System Performance and Confidence Interval

When you review the performance of a trading model, how do you know it’s worth trading for? How do you know it’s the right system for you? How confident are you that it will continue to profit in the future? When it comes to evaluating your trading model there are many factors to take into account. […]

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System Parameter Permutation Beats Data Mining Bias

Scaling Out

Recently, an interesting new perspective has emerged regarding trading system development. The National Association of Active Investment Managers (NAAIM) has just announced a $10,000 Wagner Award for Dave Walton of StatisTrade for his pioneering work in exploring a new method for trading system development, which he calls System Parameter Permutation (SPP). It’s a well-merited prize, since […]

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Top Five Most Popular Articles From 2015

Happy New Year system traders! With the new year it’s time to take a look back at 2015 and highlight the top five most popular articles. These articles all provide great material to help you in your systematic trading. Did you miss any of these articles? If so, now is your chance to review this […]

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Fooled by Randomness Through Selection Bias

— By Michael Harris, Price Action Lab There are software programs for traders that use some process that combines indicators with exit conditions for the purpose of designing systems that fulfill desired performance criteria and risk/reward objectives. In general and due to data-mining bias it is very difficult to differentiate the random systems from those that may possess some intelligence in pairing their […]

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