Hi all. I've been a fly on the wall here from time to time and come to appreciate a lot of experienced and successful folk are involved in the forums here. I would like to describe where I am currently with my trading, as I know others may have trodden the path I am now beginning on, and I would value any insight or advice. After a lot of hard work, sweat, tears and a dash of luck, I have created an automated trading system. I spent 3 years developing the system, but always found it was let down by my psychology. After a Eureka moment I was able to change the system to work in a fully automated manner. I used Excel to back test on 7 years of data which confirmed my expectations. So I then created a robot to trade for me. I repeated the 7 year back test in my trading platform which gave me near enough the same results and equity curve (differences in my spread calculations in excel accounted for minor differences.) I have now forward tested the robot for 3 months and it has run flawlessly 24/7. I have run a 3 month backtest for the same period and returned the same results, which has in my mind validated the 7 year back testing (in addition to all my manual cross checking.) In the 7 years (2005-2012), the system averaged 300% annual return (compounded on 1% risk). The average yearly drawdown was 14% with the worst drawdown being 19%. I am aware I am at the mercy of the market - they have been reliable for 7 years, but 2013 may, if it wishes, present an unprofitable year. My goal is to have enough money in the bank to retire from my current job, and eventually earn enough to benefit family, people I know in need and other good causes. I am greatly interested in advice from those with experience. What are my options are this stage (beginning) of my potential trading career? I have very small capital, but I am fortunate to be in a job I don't loathe, so I can take my time to build capital if I end up taking no other action. Having said that, if I had opportunity to kick start a "career", I would definitely consider it. Thanks
What securities does your robot trade? Where did you obtain the data for your backtest? Did the data include bid and ask quotes, or was it executions only?
You don't need anybody with these returns. Just get $50k, which will be $200k in a year and $800k in two years. That's it. If you add small leverage you will be a millionaire in just two years.
Keeping in mind that I'm in the same stage as you.... Sounds like you've "gone through the paces" in gaining confidence in your system. The next step is to trade your system using live money and see if you get similar results. Put $500-$1k into an account and trade a micro futures or forex instrument that your backtesting results were favorable for. As you gain more confidence scale in your risk/size or if your system blows up you won't have risked a lot of money finding that out. Good luck!
If you can't raise serious money yourself. maybe run the strategy at a prop shop with a 5-20k deposit. Sell your car if you have to.
- How realist are your backtesting results? No LMT order should be assumed filled unless price traded through that limit. No exception. If your system trades futures, then the biggest problem to be concerned with would be execution slippage, in most liquid futures 1-tick slippage for stop orders (on average) and 2-tick slippage for market orders should cover you good. If your system trades stocks, then on top of slippage getting filled on LMT orders might be an issue at times. Also, you can't short until you can borrow shares to short, this is mostly dependent on your broker and the stock you are willing to short, no backtesting results for short stocks can be trusted. In cash forex there are issues as well, I am not familiar enough with that to be helpful though. - How often does your system trade? if intraday, your best bet is to rent a VM in a datacenter or Amazon cloud, and run your system on that VM. You can access it from anywhere, and that will give you the most resilient energy & internet access. If you have done your homework, at this stage your best course of action is to take your system live using the smallest position size. Make sure you are psychologically & financially prepared to going through a drawdown twice the size of the largest one in backtest. Be patient, the most important part of going live with an automated system is to let it trade: leave it alone, you have done your job, now it is just the law of large numbers at work.
Can you trade it live with an amount of money you can afford to lose? If so, get started and see how the real market treats you.
Simulation results are never 100% correct, and are frequently 100% wrong. No offense, but I would give better than even odds that your system is completely worthless, and that its "results" are due to one of the many potential backtest/simulation problems (overfitting, snooping, bid/ask bounce, lack of assumed liquidity, and many others that don't even have names). I am speaking from experience here, and am trying to inject a bit of reality into your thinking, which I myself was missing at various points. Why don't you just start trading it yourself? I think it's the only way you'll know whether it really works.