Trading Strategy Development

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  • #21518

    Hi all,

    There is some good stuff in this community and I was able to make some subtle distinctions which help me in my manual trading.

    In relation to automated trading, I use the following indicators: RSI, W%R, CCI, Stochastics, having created over 40 strategies and having backtested and optimized them on a 5 year time frame with 40 different markets (all DFB: eur/usd, FTSE100, DAX30, Orange Juice, High Grade Copper, Silver, Soyabean Oil, Lumber, etc…).  Despite decent gains from tests, I am unable to produce reliable gains in practical application of the code.

    I am seeking some practical information on strategy structure and some examples of viable strategies so that I may improve what I have or simply develop viable strategies.

    Your input is most welcome.

    Many thanks!!

     

     

    #21639

    This is a practical roadmap to guide you when developing a system: https://www.prorealcode.com/wp-content/uploads/2016/09/System_Development_Process_MindMap.pdf

    The number one reason historically opitimized systems fail is because of overoptimization. Techniques to avoid this include simple OOS testing (out-of-sample testing) and walk-forward testing. In the first, you optimize and test your strategy on one half of the data, then test it on the unoptimized data. If it is viable, it will produce decent results on both tests.

    There is a library full of strategies. They all show historic gains, but vary in reliability. The really viable strategies are not going to be shared with anyone, because they are too valuble. If you want to know why YOUR systems fail, you would need to post one of them so we can find out where you can improve.

    Seeing as you use for example four different indicators in a single system, that may be too much. Focus on using one or two indicators as filters, and make the entry depend on some price action event. You may also not be counting the spread and overnight fees correctly when testing. For exits, try using a stop loss that is not fixed, but is set by the average true range.

    In addition to that, what time-frames do you use? Higher time-frames are much easier to develop successful systems on. On the other hand, the higher you go, the more fundamental events play into account. Are you in the sweet spot between?

    When you describe your tests as having ‘decent gains’, do you look at the gains (which do not really matter as long as positive), or do you look at the maximum drawdowns, number of trades, etc. ? How much drawdown in % is acceptable to you, and how many simulated trades is your minimum to trust a system’s performance? I aim for drawdown of less than 10 % and minimum 500 trades.

    Are your systems trading both short and long positions? If not, results may be skewed if the underlying instrument has experienced a bullish or bearish market trend.

    #21643

    Hi Jackzer,

    I think your choice of indicators is heavily redundant. If you use an RSI you don’t need a stochastic and neither a CCI because they all return rather similar results. I mean they are all overbought/oversold indicators.

    Don’t get me wrong all three are good indicators but they essentially do the same so you are adding relatively few informations with every other indicator. I would make a bet that optimizing 3 different rsi indicators with different period lengths will produce a similar result.

    Next you might find that a single RSI will already produce decent results under certain market conditions and perform bad at other times. So instead of adding another overbought/oversold indicator you might want to look at indicators that inform you about the current market condition.

    And when you add that indicator you have a better chance that the additional information, and in consequence the additional rule, will actually add value and robustnes to your system overall.

    Maybe you just want to read up more on the basics to help you navigate the complex world of trading. IMO Perry Kauffman and Howard Bandy are good works to start.

    #21656

    Wing and Derek have already well summarized the whole idea:

    • Don’t over-fit on past data, IS/OOS tests are your only friend while developing new strategy
    • Don’t use similar indicators, especially too many oscillators that give you almost the same information: 90% of them were designed to find the price mean and then evaluate how far the price is from it, this is what everyone is calling overbought and oversold areas
    • Too much complexity of the strategy will certainly give you a bad bias for future performance
    • Carefully analyse your backtests, a sweet equity curve is nothing more than a line drawn on your screen, relevant and important results are in the numbers
    • Cut the losers and use decent money management
    • etc.

    There are so much to say when you want to give advices, but with years of coding for customers, I would also say that there is no hidden secret somewhere that will give you a good chance to have better results than now.. just do your homework, learn, study, read, communicate with other traders.. A painful journey that could give you an edge into your trading someday, hopefully.

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