My backtested system consistently beats the S&P500

Discussion in 'Professional Trading' started by StockTrader1985, May 8, 2007.

  1. ================
    Stocky-T-85;.
    a]Does that include slippage, comissions???????[most s&p 500 numbers do not, ouch]

    b] Even though 1998 ,99 uptrends & the bear market following were MUCH better than average trends, at least you tested both bull/bear. Wish real time results matched backtest;but
    sounds like its worth trading ,small start anyway.

    c] See if it 's validated or violates by any or many principles in 3 top trader books by Jack Schwager
    and Curtis Faith, WAY of the TURTLE book .:cool:

    Plans of the diligent tend only to advantage.
     
    #11     May 8, 2007
  2. LMAO

    Pitchforks at the ready.


     
    #12     May 8, 2007
  3. feb2865

    feb2865

    The villagers are sleeping

    they will find about this thread for sure

    sooner or later
     
    #13     May 8, 2007
  4. Just a quick observation -

    Is it based on small caps or large companies?

    You have to calculate the return on a risk adjusted basis to mean anything or at least calculate some portfolio performance statistics like - alpha.

    If you're going to try to manage OPM you should know how.
     
    #14     May 8, 2007
  5. riskette

    riskette

    Dear Stocktrader1985,

    I don't know your system but make sure you have accounted for survivorship bias in your backtesting.

    "Survivorship bias is the tendency for failed companies to be excluded from performance studies due to the fact that they no longer exist. It often causes the results of studies to skew higher because only companies which were successful enough to survive until the end of the period are included."

    riskette. mba
     
    #15     May 9, 2007
  6. mde2004

    mde2004

    You should be managing a 500m dollar hedge fund with those stats friend,
     
    #16     May 9, 2007
  7. yes, but I'm not sure how to detect, objectively, whether I am form fitting or not
     
    #17     May 9, 2007
  8. Thanks for the response

    1) no, it does not include slippage and comissions. However, I've always been under the impression that slippage doesn't make a huge deal when backtesting equities. I'm assuming that I'm purchasing 100 stocks at the beginning of every year. What percent of the reported annual returns will commission and slippage eat out o?

    2) I know 98 was the worst year for me in the backtest, and the only way I can explain that is because, like I said, my system is based on value investing models which look for stocks that are undervalued by the market. The great bull market of those years weren't due to undervalued stocks, but stocks that were actually overvalued but were still being pushed forward by the market. Of course, this is what eventually led to the stock market bubble. Therefore, my system doesn't detect these stocks, so I miss out. But on the whole, I am able to buy conservative stocks that are, based on probability, expected to go up rather than down (in case you're wondering, I don't short any stocks in the backtest)

    3) Not familiar with the TURTLE book, or these "principles" that you speak of. Could you elaborate?
     
    #18     May 9, 2007
  9. 1) Large cap, in fact one requirement is that the company's market cap must be at least a billion. I ran the system over small cap, and although I beat the s&p500, the results weren't as great as the large-cap test. However, since the two tests are mutually exclusive, I think that should add legitimacy to my system. What do you guys think?

    2) how do you calculate return on risk adjusted basis? are you talking about drawdown, or standard deviation?

    also, are there any objective tests I can run based on the stock's balance sheet and/or income statement? like I said, I'm looking for something objective

    EDIT: I will also be running the tests on foreign equities in the near future. I will keep you all updated
     
    #19     May 9, 2007
  10. definetly don't have surviorship bias. when selecting stocks for each year in the past, I go through the list of stocks available at that point in time to make the decision, along with their financial data
     
    #20     May 9, 2007