Changing a mean reversion strategy to deliver 30% annual returns since 1999
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Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#2I think the risk of a 35% drawdown is too big with this strategy. Even if 20%, it's still too big. Perhaps 15% would be about at the borderline of okay.
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#3Essential reading for all prospective traders is Taleb's "Fooled by Randomness."
Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts.
With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probability catastrophic losses.
For example, many naive gamblers think that a strategy with a 45% chance to win, combined with betting to cover losses, will nearly always succeed because the odds of losing ten times in a row seem low. However, when the inevitable 11th loss occurs, it can be devastating.
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#4Essential reading for all prospective traders is Taleb's "Fooled by Randomness." Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts. With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probabi…
This is true, but traders like me chase it anyway, refining the strategy at each failure. If there is no refinement possible, then the trades should stop.
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#5Essential reading for all prospective traders is Taleb's "Fooled by Randomness." Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts. With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probabi…
This is true, but traders like me chase it anyway, refining the strategy at each failure. If there is no refinement possible, then the trades should stop.
> refining the strategy at each failure
You make it sound like you are improving yet with all traders like you "chasing it anyway, refining the strategy at each failure" what exactly are you improving? When you play a game like "rock paper scissors" what refinement is possible?
Due to market feedback loops the patterns you look for profits are transient. When they do persist do you ever wonder about them being like fake "tells" in poker that lure you to bet big setting you up to be smashed later?
High frequency trading / front running information and arbitrage may be profitable but require low latency costly access.
Apart for that my impression is that technical analysis based short term trading (as opposed to long term investing) is on net a negative sum activity. Like a game of "rock paper scissors" there is nothing to improve.
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#6Earlier quoted context omitted.
This is true, but traders like me chase it anyway, refining the strategy at each failure. If there is no refinement possible, then the trades should stop.
> refining the strategy at each failure You make it sound like you are improving yet with all traders like you "chasing it anyway, refining the strategy at each failure" what exactly are you improving? When you play a game like "rock paper scissors" what refinement is possible? Due to market feedback loops the patterns you look for profits are transient. When they do persist do you ever wonder about them being like f…
I don't view it as RPS. I view it a bit as a game of chess. Whether it is a net positive or net negative, time will tell. I am not claiming success. Those who are so mentally closed off that they will downvote any differing opinion without understanding it will never succeed with it.
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#7What tools and services does one use to do this kind of testing?
Where does the data come from?
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#8What tools and services does one use to do this kind of testing? Where does the data come from?
The data used is Sharadar Core US Equities Bundle:
https://data.nasdaq.com/databases/SFA
It's a great survivorship-bias-free dataset.
Regarding tools, I use Python. I wrote the backtesting software many, many, many years ago during my Master's degree, and I've been refining it ever since.
It's an event-driven engine (they are slower than vector-based engines, but they are easier to write strategies for, understand, and debug) with all the bells and whistles, similar to the late Zipline. In fact, I tried most of the Python backtest engines that exist, and that's why I prefer to use what I built over the years: I have 100% understanding of what’s happening and 100% control.
I’m thinking about open-sourcing it… anyway, the logic is not that complicated.
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#9Earlier quoted context omitted.
> refining the strategy at each failure You make it sound like you are improving yet with all traders like you "chasing it anyway, refining the strategy at each failure" what exactly are you improving? When you play a game like "rock paper scissors" what refinement is possible? Due to market feedback loops the patterns you look for profits are transient. When they do persist do you ever wonder about them being like f…
I don't view it as RPS. I view it a bit as a game of chess. Whether it is a net positive or net negative, time will tell. I am not claiming success. Those who are so mentally closed off that they will downvote any differing opinion without understanding it will never succeed with it.
> I view it a bit as a game of chess.
Given the possible winnings and bad players lose their chips to good ones and retire what skill level do you suppose is on the other side of this game? Given this you still play?
> Whether it is a net positive or net negative, time will tell.
For you "time will tell" because evidence from rational thinking and the experience of countless others is not enough?
> Those who are so mentally closed off that they will downvote any differing opinion without understanding it will never succeed with it.
Hence I am not voting but asking questions trying to understand your "differing opinion". You view the activity as a game of chess. I view it as an effort to construct a perpetual motion machine. What matters is the money and time wasted on what is known not to be possible. What matters is why someone who seems intelligent fails to understand this. Perhaps they do and so actually have a different plan than building a perpetual motion machine. Maybe they are building an audience of those who believe in perpetual motion machines?
> I am not claiming success.
Yet you or at least the author of the article seem to believe if they stick with this "research" they will be successful? How long till they claim to have success and, for a price, offer to share the benefits of their success with you?
Re: Changing a mean reversion strategy to deliver 30% annual returns since 1999
#10Earlier quoted context omitted.
I don't view it as RPS. I view it a bit as a game of chess. Whether it is a net positive or net negative, time will tell. I am not claiming success. Those who are so mentally closed off that they will downvote any differing opinion without understanding it will never succeed with it.
> I view it a bit as a game of chess. Given the possible winnings and bad players lose their chips to good ones and retire what skill level do you suppose is on the other side of this game? Given this you still play? > Whether it is a net positive or net negative, time will tell. For you "time will tell" because evidence from rational thinking and the experience of countless others is not enough? > Those who are so m…
You wouldn't want to confuse my cautiousness with failure. My system works, but:
(1) It doesn't beat the market on green market days or overall. Given how the market has been since October 2023, you'd do a lot better by just holding an ETF.
(2) It does make money on red market days too.
(3) Overall it does earn and is successful, but I express caution because I think that at least four consecutive years of success is necessary before labeling a strategy successful. I haven't run it for that long.
(4) I keep doing experiments, several of which turn out to be failures, although I have done enough of them already, and I'd like to move on to something else now.
(5) I don't see the future, but I adapt to it. I cannot promise you that this will always work, that it won't blow up.
> Given the possible winnings and bad players lose their chips to good ones and retire what skill level do you suppose is on the other side of this game?
There are all levels of skills and of time horizons. Those with bad skills either quit or adapt. Others just have to hold for longer to see profit.
> I view it as an effort to construct a perpetual motion machine.
The reason why the market is viewable from the perspective of a perpetual motion machine is due to excessive federal moneyprinting shaking things up. If not for it, if dollars were backed 1:1 by hard assets like gold, I think it'd be a lot calmer.
> How long till they claim to have success
It took me a year to come up with a strategy that looked to work, but another year to simplify it to the bare essentials and to decrease risk where I could.
Being open-minded, faithful, and steadfast are essential prerequisites to discovery. If you mind is already made up, that would make you like everyone else.