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Tag Archives for " Backtesting "

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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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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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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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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Fooled by Monte Carlo Analysis

Fool 2

–by  Michael Harris from Price Action Lab Simple Monte Carlo analysis tools are often used to assess the risks of trading systems and to determine appropriate capitalization levels. However, simple trade reshuffling algorithms can produce misleading results in many cases and fool their users. There are several Monte Carlo analysis tools available to traders. Some of these […]

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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?


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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Deterministic Machine Design of Trading Systems With Strict Cross-Validation

— by Michael Harris from Price Action Blog. A high win rate trading system for SPY was machined designed using a deterministic method and a simple predictor of price. Cross-validation of in-sample results was performed on out-of-samples of SPY and of an anti-correlated security. The results show that high win rate trading systems with appropriate risk:reward ratio can […]

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