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Most trading strategies are not tested rigorously enough

economist.com

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Re: Most trading strategies are not tested rigorously enough

#31

Post by throwaway183839 »

fma wrote: post #25
balazsdavid987 wrote: post #22

Earlier quoted context omitted.

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.

What Virtu does to make money (market making and latency arbitrage on a milli- and microsecond timescale) is very, very far away from recognizing chart patterns and trading on them!

Re: Most trading strategies are not tested rigorously enough

#32

Post by throwaway183839 »

cgold wrote: post #18

To what extent does the industry use Bayesian methods? It seems to me that, for a given trading strategy, trading companies are really interested in the mean profit impact of the strategy and its distribution (e.g. "there is a 10% change we will lose more than $20M"). Bayesian methods will naturally produce such an answer. Bayesian methods won't magically solve all problems (e.g. fitting to historical data) but could…

I can't speak for other teams, obviously. But almost everything we do would fall under the heading of "Bayesian methods". It's such a broad term that it would be hard to write a trading algorithm that couldn't be described as Bayesian.

Re: Most trading strategies are not tested rigorously enough

#33

Post by derriz »

biomimic wrote: post #29
derriz wrote: post #24

Earlier quoted context omitted.

"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 gre…

If you think there is any insight into current market structure in that linked article, you're on the wrong track. It manages to be 15 years out of date and confuse open outcry (pit trading) with the specialist/broker system employed for equities.

And there's nothing magic about simulating "manipulation" - you're not one of those deranged paranoid zerohedge balloonheads are you?

And it's clear you have no experience in this area if you say something as trite as your last sentence.

Good luck with your "system".

Good luck with your "system".

Re: Most trading strategies are not tested rigorously enough

#34

Post by biomimic »

derriz wrote: post #33
biomimic wrote: post #29

Earlier quoted context omitted.

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 gre…

If you think there is any insight into current market structure in that linked article, you're on the wrong track. It manages to be 15 years out of date and confuse open outcry (pit trading) with the specialist/broker system employed for equities. And there's nothing magic about simulating "manipulation" - you're not one of those deranged paranoid zerohedge balloonheads are you? And it's clear you have no experience…

Yawn.

Re: Most trading strategies are not tested rigorously enough

#37

Post by icu »

A lot of the comments here seem to be from people with institutional experience or wannabe retail traders. As a retail trader (who used to phone my broker to make trades) that has progressed to an algorithmic retail trader (I do all my own development with some mentoring help from professionals) I can say that it is possible to make a good return on risk.

This did not happen overnight. I've spent thousands on my education and by that I mean I've been scammed, gone to useless seminars, read nearly 100 books on the subject and made terrible trading errors and trading losses.

I only started getting serious traction after a confluence of events that led to being tutored by an ex-JP Morgan quant and a software developer friend who has been developing trading software for the big Bank trading desks in London.

Moral of the story? Persistence.

How does this relate to the article? Persistance eventually overcomes a lack of testing to eventually lead to a robust testing methodology.

So yeah I do agree that most (retail) trading strategies are not tested rigorously but that's due to the difficulties around acquisition of inter-disciplinary knowledge and the balls to get real experience my putting money on the line.

Re: Most trading strategies are not tested rigorously enough

#38

Post by stdbrouw »

superuser2 wrote: post #30
IndianAstronaut wrote: post #26

Earlier quoted context omitted.

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.

It's really not. Statisticians usually receive only minimal training in statistical programming, data cleaning, data gathering and warehousing and so on – yet those are all essential to data science. On top of that, when dealing with bigger data sets, many common statistical tests become irrelevant, as their main purpose is to make it possible to reason about small sample sizes.

Of course, I don't mean to imply that a data scientist shouldn't have at least a basic statistical grounding: they do. But there's roles in data science for people with varying skills in programming, ops, statistics, ML, visualization and so on.

Re: Most trading strategies are not tested rigorously enough

#39

Post by washedup »

sz4kerto wrote: post #12

"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…

This is exactly why I am on my way out. I have worked as a quant for traders for the past 5 years, and I am running out of patience. It's tough because Chicago is such a heavy financial hub. I have decided to move to a new city and try to exit trading all together.

Re: Most trading strategies are not tested rigorously enough

#40

Post by biomimic »

pbowyer wrote: post #15
biomimic wrote: post #6

When 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…

> That's why I'm developing an algorithmic trading system based on sympathetic, symbiotic and parasitic hidden connections. That sounds fascinating. Do keep us informed!

http://www.cymetica.com/recommend/app/hidden_connections?que...
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