All types of trading, no matter what system, is theoretical until it hits the market. The market is the only test.
Most trading strategies are not tested rigorously enough
21–30 of 41 posts
Re: Most trading strategies are not tested rigorously enough
#22From Wikipedia: "Some people claim that by recognizing chart patterns they are able to predict future stock prices and profit by this prediction; other people respond by quoting 'past performance is no guarantee of future results' and argue that chart patterns are merely illusions created by people's subconscious."
In my experience, the patterns are not illusions, they are very much real, but they don't have predicative power.
Re: Most trading strategies are not tested rigorously enough
#23[deleted]
Re: Most trading strategies are not tested rigorously enough
#24When trading real money in a real market, predictions based on historical data go out the window. Historical data will never be able to truly simulate manipulation or sympathetic, symbiotic or parasitic relationships. Ever back-test a trading system that simulates a Market Maker letting low block go under the bid or dialing down the sensitivity of the bid vs. the ask? Speaking from experience. That's why I'm developi…
"When trading real money in a real market, predictions based on historical data go out the window." No they don't. Depends on the style of course but most arb or stat arb strategies are fully derived from historical data.
"Ever back-test a trading system that simulates a Market Maker letting low block go under the bid or dialing down the sensitivity of the bid vs. the ask" Could you express this more clearly? Your language is sloppy. Yes I've back tested lots of market making strategies - all far more complex in behavior than traditional market making.
Re: Most trading strategies are not tested rigorously enough
#25From Wikipedia: "Some people claim that by recognizing chart patterns they are able to predict future stock prices and profit by this prediction; other people respond by quoting 'past performance is no guarantee of future results' and argue that chart patterns are merely illusions created by people's subconscious."
In my experience, the patterns are not illusions, they are very much real, but they don't have predicative power.
http://www.bloomberg.com/news/articles/2015-02-20/high-frequ...
Predictive enough that when combined with money management strategies you can make money every single day of the year.
Re: Most trading strategies are not tested rigorously enough
#26"Most trading strategies are not tested rigorously enough" After having spent many-many years in the financial sector, I don't even know whether I should laugh or cry. :) The industry is not based on science, well, 99% of it isn't. Traders can be considered being the master of the universe just because pure luck. Well-researched, tested strategies are thrown out because they're not profitable enough to the senior man…
My experience across industries is that people don't know basic statistics or the value of statistics. I even came across a manager of a data science team at a major company who did not know anything about statistical testing.
Re: Most trading strategies are not tested rigorously enough
#27"Most trading strategies are not tested rigorously enough" After having spent many-many years in the financial sector, I don't even know whether I should laugh or cry. :) The industry is not based on science, well, 99% of it isn't. Traders can be considered being the master of the universe just because pure luck. Well-researched, tested strategies are thrown out because they're not profitable enough to the senior man…
A number of years ago a friend and myself worked out what could best be described as a medium frequency trading strategy based on historical trading data. This was when high frequency trading was still in its infancy. The algorithm would find certain stocks with a high frequency of highs and lows. In simulation, it worked perfectly. We were making loads of "virtual money." This got us excited enough to unleash the algorithm on the world. Guess what the problem was? All the testing in the world can't account for the market dynamics your algorithm itself creates. That was our biggest downfall. Time and time again it worked in simulation but in the real world, its trading actions based on historical data was in fact impacting the market in unexpected ways that we were ultimately unable to account for.
Re: Most trading strategies are not tested rigorously enough
#28Earlier quoted context omitted.
Agreed, errors are non-normal so 20+ sigma is practically false. But it's not too far off -- I've seen strategies that never have a down day and have daily sharpes of 2.5-3.0, and those setups will generally have incredibly high sigma values even after accounting for non-normality (and other assumptions).
Remember, strategies that 'never have a down day' are only one day away from having a down day... ...and there are plenty of strategies that had only a single down day, unfortunately that one down day wiping out the entire company :)
I used to be very big into algorithmic and day trading, and one trader I was introduced to had Martingale'd himself into a record of something like 2 years without suffering a loss. Then he suffered a 300k loss and wiped out all of his earning plus more and then he lost a lot of his followers, at least for a while.
Re: Most trading strategies are not tested rigorously enough
#29When trading real money in a real market, predictions based on historical data go out the window. Historical data will never be able to truly simulate manipulation or sympathetic, symbiotic or parasitic relationships. Ever back-test a trading system that simulates a Market Maker letting low block go under the bid or dialing down the sensitivity of the bid vs. the ask? Speaking from experience. That's why I'm developi…
"When trading real money in a real market, predictions based on historical data go out the window." No they don't. Depends on the style of course but most arb or stat arb strategies are fully derived from historical data. "Ever back-test a trading system that simulates a Market Maker letting low block go under the bid or dialing down the sensitivity of the bid vs. the ask" Could you express this more clearly? Your la…
Show me how you back test for manipulation I'd love to incorporate that into my system!
Don't forget to read that paper above by Gur Huberman. Good starting point.
More slopppy+---adsf language for you...:::
How Brokers Can Avoid A Market-Maker's Tricks http://www.investopedia.com/articles/financialcareers/06/mma... lets incorporate this too.
I also agree that TA and back testing applied to long positioning workw great in bull market!
Re: Most trading strategies are not tested rigorously enough
#30"Most trading strategies are not tested rigorously enough" After having spent many-many years in the financial sector, I don't even know whether I should laugh or cry. :) The industry is not based on science, well, 99% of it isn't. Traders can be considered being the master of the universe just because pure luck. Well-researched, tested strategies are thrown out because they're not profitable enough to the senior man…
My experience across industries is that people don't know basic statistics or the value of statistics. I even came across a manager of a data science team at a major company who did not know anything about statistical testing.
... what
Data science is a buzzword substitution for statistics.
How you could possibly have someone in a "data science" role without a statistics education is baffling.