Assume you purchased the entity in question at the open on the initial date of your system test and sold at the close of the last day. Since no dividends are involved it's pretty straight-forward. Apply the same metrics that you use to evaluate your system (volatility, MFE/MAE, max draw-down or whatever) and you can make comparisons on how much of an edge your system adds.
Yeah that wouldn't work - Futures expire. Comparing it to those VIX ETNs would be the best bet - and I know those always lose out in the long run.
Since you know that the buy and hold method doesn't work on this product, I would venture that a reasonable benchmark might just be buy and hold on the SP500 index over that time frame since it is highly efficient and has lots of available historical data. Assuming you can exceed the returns (including re-invested dividends) and reduce the volatility, etc, you might be on to something. If not, then the system doesn't make sense in it's current form.
Good point - I see what you mean. Lower Vol and Higher Returns are the key. I'll check it out and get back to you guys.
~ How many variables have you optimized? How many trades have you executed over the total period? Are you making more than 200 trades per variable? ~ Will all variables, within a reasonable range, still produce desirable results? ~ Does the system progressively degrade as you enter different inputs? ~ Is the system doing what you designed it to do? Have you cross referenced your trades with your indicator(s)/system and found no contradictions? - Generally it will be very obvious at first look. ~ Have you attempted to test the system in some kind of live condition - paper trading or replay and produced the same results as your back tests? ~ Does it at least work to a certain extent on other contracts, even if not as well? If you answer no to any of these, your system is junk . You are making progress with your experience though, so congratulations. ~ Lastly, and the most difficult to ask and be honest with yourself - was the system a "fluke" eureka moment, a result of trial and error or the product of something very simple that most likely has been tried before?
-Not sure what you mean about the first question. The system directs me to trade a couple futures contracts every day at the close. -Yes it produces desirable results. It's doing what I wanted it to do. -What different inputs to you mean? Unfortunately I don't have an out of sample dataset to run as these futures came into existence in 2004. -I have run this live since November 2011 and I am up over 80%. -Does not work on other futures contracts. That is because nothing is quite like the VIX. -I started with 2 variables that I thought of and the returns were 60 annualized and 67 vol. Added one more after thinking about it in the shower (eureka) and that changed it to it's present, more solid form. I supposed since I answered NO to one of these questions then my system is junk. The fact that no one else has done this strategy (at least I've never heard of it) for as simple as it really is, blows me away. I'll take my junk and make my millions.
A couple questions: 1.) How can you trade the VIX future contract like you say? There is NO volume. The only way to remotely trade it is via VXX or TVIX, both of which don't come close to replicating it, and both of which have small leverage compared to commodities. 2.) Try to trade another contract by using a volatility indicator of as the input (instead of price) and see how it does. You'll have to tweak the period and time frame together. I would ask others, however I think this is enough for now...good luck. P.s. your tone in the OP makes it sound like you have never been live with a system in your life, and your "make my millions quip comes from an ego that won't be successful in trading. To make returns- automated or discretionary - you must learn to control your ego and emotions. We are 97%+ similar to chimps, yet it's the 3% human part that causes all the problems.
I'm not trading futures 100 times a day to make a couple pennies and nickels. I plan on buying or selling a handful at the close once my account gets large enough. More than enough volume for a small investor like me. Currently I am using VXX, XIV, and others to get the exposure I'm looking for - that was my initial backtest - I moved on to backtesting the futures after that. I'm not staring at charts, looking for moving average indicators or bands or anything. Just incorporating a couple factors I thought made sense. And they do. I've been live since November. Taken some big daily drawdowns, but feel 10 times more comfortable with an algorithm I designed and tested telling me how to trade than my own "gut". I'll make my millions not overnight or anything. But give me 10 years or so. If you like I'll keep you posted on the returns.