Welcome to NexusFi: the best trading community on the planet, with over 150,000 members Sign Up Now for Free
Genuine reviews from real traders, not fake reviews from stealth vendors
Quality education from leading professional traders
We are a friendly, helpful, and positive community
We do not tolerate rude behavior, trolling, or vendors advertising in posts
We are here to help, just let us know what you need
You'll need to register in order to view the content of the threads and start contributing to our community. It's free for basic access, or support us by becoming an Elite Member -- see if you qualify for a discount below.
-- Big Mike, Site Administrator
(If you already have an account, login at the top of the page)
Thanks. I was hoping for some software where i can do this automagically. However I think you mentioned in your book that trading is a marathon and not a sprint.
There probably is software that will do it for you. There is software for just about any trading task (strategy building, optimization, walkforward, etc).
The problem with the software is that you can sacrifice comprehension for convenience. Sure, it is easy to have software do walkforward for you, but I have found it is much better to learn what the software is doing and why.
Good example: I was doing some position sizing exercises in Excel yesterday, and in building my model, I asked myself "why use average losing trade as a parameter - maybe use average monthly loss instead?" This lead to a pretty cool breakthrough in what I was doing. I would not have discovered it had I just hit the software "run" button.
I was thinking off taking the above process one step further. I was thinking of adding some sort of genetic optimization algorithm to do the optimizing for me. That way the entire parameter space can be searched with me make a decision on how big the steps should be and which parameters should be optimized.
So all my in-sample testing would be done by trying to optimize the whole parameter space.
I was wondering whether you have any thoughts on that?
Realize every time you do genetic optimization, you'll likely get different optimum results. That makes using it with walkforward very difficult.
In general, genetic optimization to me means too many variables to optimize. I use it very sparingly - only on a limited dataset, and only to simplify my strategy (eliminate variables).
But again, with all this development, there usually is not "correct" answer. I see people succeed with methods I would NEVER use. Ultimately, if it makes you money, that is the key.
thank you so much for making amazing resources available on your website. Gave me so much to think about and even study/research.
I have one question that I have not been able to research and find out on my own. I downloaded the Monte Carlo simulator from your site. I realize it is a simulator and uses random data. Many explanations on the internet does not focus on the financial aspect of the sim.
Could you point me to where I can better understand this simulator? When I input all my trades in your excel sheet, what does the program supposed to calculate. I get all these numbers and graphs that I cannot understand. What is calculated 2500 times ? What do the numbers mean if they are negative or positive ? What do I gain from this sim? Does it say anything about my success or is it a purely random outcome ? If so then why is it helpful?
So sorry to ask so many questions, I guess I am confused as to what it tells me after I input my trades. I understand if you don't have time to answer all these but I would greatly appreciate it if you can recommend a site where I can better understand it.
You run a backtest, and you get a sequence of trades, and from that you build an equity curve. From that equity curve, you know your return, your max drawdown, etc.
But, what if you had the same trades, but just in a different order?
That is what Monte Carlo simulation does. It takes your trades, and scrambles them up, giving you many different equity curves.
The theory is that going forward, any of those equity curves is possible, since they are all derived from your historical testing.
If you run the simulator, it creates 2500 different equity curves. It then calculates the statistics for the strategy, giving you probabilities of certain events occurring...
For example:
If I start with $10,000, what are the chances that I'll get wiped out trading this strategy?
How much capital do I need to safely trade this strategy?
1. Randomize Trades order
2. Randomly skip trades
3. Randomize strategies parameters
4. Randomize starting bar
5. Randomize history data
6. Randomize spread
7. Randomize slippage
8. Randomize distance from price
A strategy that at 95% confidence have a Return drawdown change of more then 50% in any of above Montecarlo test i ditch.
I use Walkforward as my last test for pass criteria. For this i use A walkforward 3D matrix simulator. What i look at is the performance of the strategies between diffrent runs. Preferably all runs should have the same performance but they do not so i look at.
1. Net profit
2. WF net profit stability in each run
3. Percentage of profitable runs
4.Max profit in one run as percentage of total net profit
5.Min trades in one run
6. Max percent draw down in one run.
7. Max stagnation in %
8. WF return/DD stability
As a last check i compare the walkforward performance with the orginal strategy performance yearly so even if it passes all above criterias but it has a year that went from a winner to looser in comparison to the original i will not use the strategy because then it is most probably curve fitted or better said not adaptable to changes in the market it trade.
Now above is probably overkill to some intent but i work with computor generated strategies and this workflow seems to work since so far i have no strategies that have had worse performance live traded then historically. Well some have performed badly but that is caused by a settings misstake from my side. When i start trading them live i look at consecutive loosers performance if the average is 2.5 and i now i have 8 something is wrong.
Since you have a ton of experience with Tradestation, i wanted to ask you how to get underwater equity in USD. It shows only in % and it is of little use as you can employ various money management techniques and not necessarily all your equity will be invested. In my case i like to use fixed usd amount for backtesting, since i want to eliminate the start date risk/luck in a backtest. Do you know how to go about it in TS? (btw, i also use Multicharts and there drawdowns are in USD)
Also, what is your opinion portfolio maestro? Do you use it for backtesting generic algos? what are some of the pitfalls or shortcomings there that you found out in backtesting generic algos? (again in my case i also use portfolio backtesting in MC and found it useful).
You opinion is highly valued as always, just like your book.
For any measure/metric that you can't find in the Performance Report, I would recommend you code it yourself and print it to the print log or to a file. That is what I do when I want a metric that I can't find elsewhere.
I have never used Portfolio Maestro, so I cannot say it is good or bad. I have used custom Excel tools for the same purpose, going back to the time before PM was part of Tradestation.