Welcome to my online repository of research and insights on automated trading system development
The last post on “Monkey-Style” trading with random entries and trailing stop exits generated a fair bit of interest, comments and questions. In this follow-up post, I want to explore the concept further and address some of the points raised in the discussions resulting from that study. Before I get started, I want to clarify [...]
Entries Tagged as 'Backtest'
Trade what you Test and Test what you Trade
January 20th, 2011 · 5 Comments · Backtest, Data
In order to avoid bad surprises in live trading, the maxim forming this post title should apply to as much of a trading system as possible. The goal is to ensure back-testing results are as realistic as they can. Input data is one component of a trading system and the area this post focuses on, [...]
Can You Trade Effectively on a Monthly Basis?
January 11th, 2011 · 19 Comments · Backtest
Long-Term Trend Following is often billed as a superior and simple alternative to Buy-and-Hold for individual traders. For those investors wanting to take a DIY/self-trading approach, an active strategy might bring better performance – but requires a far more active involvement. In the case of an End-of-Day Trend Following system trading a global portfolio, the [...]
Tags: monthly
The Good, the Bad and the Ugly Portfolios
November 18th, 2010 · 13 Comments · Backtest
Following the last study on diversification using a “portfolio randomizer”, I wanted to further explore further the concept of hindsight bias in portfolio selection and how it can impact performance. This short post is an illustration of that concept. 51 Instruments, 40 Picks, How Many Combinations? The answer is… a lot: there are 47,626,016,970 ways [...]
Tags: diversification
Trading Diversification: A Free Lunch?
November 10th, 2010 · 20 Comments · Backtest, Money Management, Strategies, Trend Following
The more I think about system design, the more I get convinced that diversification is a key to great performance. As the cliche goes: Diversification is the only free lunch on Wall Street. This is a concept equally shared by Modern Portfolio Theorists and Trend Following Wizards, who usually emphasise the concept – and [...]
Tags: diversification
Profit Targets and Trend Following
September 30th, 2010 · 17 Comments · Backtest, Trend Following
OK, Profit Targets. You’ll tell me this is the anti-thesis of Trend Following, with one of its strongest mantra being: Cut you losses short, let your winners run… Indeed, Trend Following relies on a few positive outlier trades (from a fat-tailed distribution) to derive most of its gains. Stopping trades from running as high as [...]
Tags: profit target
