I hear what you're saying. I should check further back to find possible max drawdown. What's encouraging is that despite the crazy market this year with low volatility early in the year and high late and all the up and down the system return stays fairly steady. A couple of the parts did much better when the vix shot up and my intention is to put a volatility rule on those. I may be jumping in before every little thing is ironed out, but if I wait till I've done that I'll never get trading! Thanks for the advice brain.
Also important is to test for bull and bear. And different types of your market. Test ES, DOW and NQ, Russell 1000, Russell 2000 Russell 3000, Russell Microcap, FTSE, NIKKEI, EUroStoxx, Emerging makrets etc.
One year might not be enough but I'm pretty sure that within the last year I've seen every kind of intraday motion. It's a dynamic amount per trade with either a fixed stop loss or none at all. Returns are actually better with none, but for comfort I'll use a fixed stop. You lost me with "serial correlation" The strategy report in Tradestation is pretty thorough and has max drawdown and profit factor and stuff like that. I expect I'll be doing modifications and adjustments as I go along. I'm pretty confident that at least I won't lose (much) money. Thanks 377 !
I'm only one or two trades per day. Backtesting shows better returns with no stop loss. Worst case is I'm long and there's a black swan event crash and my stop is not sent because at the same time my infrastructure goes down. I feel that's unlikely. It's just as likely I'll be short. I'm always flat eod. Thanks.
Large banks invested a lot in this space over 2009-2010, as I read tens or even hundreds of millions just to get in the door in some cases, but this looks like overinvestment now. By most indications, the space looks more crowded and competitive than ever. Just look at spreads, and consider that most HFT activity is market making/liquidity providing. The "95% failure" numbers tossed around ET typically refer to "home day traders" or "prop shop traders" (as opposed to large bank prop or "legit" hedge fund traders). It seems likely to me that there is indeed a 95+% failure amongst such traders, but these traders account for a small minority of both the number of trades and of the amount of capital involved.
They do. "Investment in trading algorithms research (a mathematical rule set for futures trading entry, exit, and stop loss points often calculated and executed by computer) is phenomenal. Investment banking firm Goldman Sachs devotes more of its resources, tens of millions annually, to developing trading algorithms than it does on trade desk staffing.[13] Trading algorithms may be as exotic as biology theorems like neutral network applied to financial market trading by Gang Dong of Rutgers University,[14] or completely based on current market time/price analysis." The losers are those that don't win. One could also say some just don't win as much. They lose winnings. One of the big winners is Renaissance Technology "For more than twenty years, Simons' Renaissance Technologies hedge fund, which trades in markets around the world, has employed complex mathematical models to analyze and execute trades, many of them automated. Renaissance uses computer-based models to predict price changes in easily-traded financial instruments. These models are based on analyzing as much data as can be gathered, then looking for non-random movements to make predictions.[7] Renaissance employs some with non-financial backgrounds, including mathematicians, physicists, astrophysicists and statisticians. About a third of the 275 employees at the East Setauket office have Ph.Ds.[7]" Sorry but your last statement is not logical. It's only so if you assume that auto systems have no advantage. The evidence is that they do.
One thing that is absolutely necessary -- run a forward test (could be simulated or on a small account), and check for a few months while still running your back tests. If your forward tests agree with your back test (to within a narrow percentage), then you should have more confidence. A huge problem with back tests is often the slippage model is woefully inadequate and your clock skew affects performance sometimes this could be so bad that your forward test will bear little to no resemblance to your back test. You need to check each and every trade that occurs in the back test and forward test, and make sure they happen exactly at the same time, and you get approximately the same price.