Deadline June

Checklist of Stupid Mistakes giving Improbably Profitable Backtest Results

* check number of trades - not enough trades. e.g. 1 trade in whole period, always looks really profitable
* short test period with a big trend makes trades in one direction massively profitable
* exit at small target on same bar - always looks good
* forgotten about slippage and commission? That HFT system probably won't work unless you have Goldman Sachs' trading platform.
* if it's a backtest across a basket of instruments, one massively profitable instrument can make the whole basket look good - which reminds me: if one instrument in a basket is massively profitable, the weighting is probably out by a factor of 10.

How's the trading going so far?

Keep forgetting this one:

Compound Annual Growth Rate (CAGR) Formula
Interest rate at which a given present value would "grow" to a given future value in a given amount of time. The formula is

CAGR = (FV/PV)1/n - 1

where FV is the future value, PV is the present value, and n is the number of years.

re trading so far: up on the week, down on the month, up on the quarter, down on the year. Does that say anything?

If you backtest in Amibroker, it gives you the correct CAGR for your system. For example, let's say your system makes 20% in year 1 and again in year 2. In total you are up 44% (1.2^2), but Amibroker returns CAGR as +20% (which is correct).

Some systems simply divide final return by number of years and return 44/2 = +22% per year, which is obviously incorrect.

Just as an aside..

I hate working in percent and at the moment I don't have to. If I find I don't have enough capital for my 2nd and 3rd systems and need some more, I'm going to have to put the PnL in percent - based on an initial capital the size of which is defined in different ways by different trading philosophies.

I guess my seat-of-my-pants initial capital per system is the max historical drawdown * 1.xx %

However I know you can squeeze it down lower than that following the MM strategies in Vince's Mathematics of Money Management.

PS thinking on the hoof again. I can reduce my leverage in forex right down to a lot size of $25K if I want, so I shouldn't need any more capital to trade all 3 systems on all 22 currencies.

PPS Expanded my current basket from 11 to 22 currencies, using the crosses that have available backdata on FXCM and IB. I'm currently very nicely surprised at the low slippage on the market orders I'm getting in the crosses.

Yesterday was a massacre, about 8 out of 10 trades were losses.

The NZD/USD stepped off a cliff and hit my stop half way down - the resulting slippage: 35 pips. I didn't factor that amount of slippage into my calculations.

That's the second big slippage I've had. The first was last month in GBP/USD for the same amount.

Funny that I'm trading crosses like GBP/AUD but I get the monster slippage in the dollar-based pairs. No doubt it will come - hopefully it won't be even more monstrous in the crosses. Imagine getting filled 70 pips below your stop without even a gap to show for it on the chart.

There might have been more trades but a series of powercuts in the North London area severely limited my up-time.

NinjaTrader 7 beta release candidate 1 was at its worst. It cost me about 5 hours trying to get it up and running and of course the issue's not reproducible by their support team.

I'm looking at Amibroker now.

My memory is like a sponge. Not a nice bathroom sponge that you would envisage, but more like a Victoria sponge that goes crumbly at the edges and is only good for soaking up tea.

MFE = Max favourable excursion
MAE = Max adverse excursion
ETD = End-of-trade drawdown

Stupid newbie error. IB closes the NZD pairs from 13:00 NY time so they say - although I'm sure I traded it at 15:00. Whatever, that was why I suffered such immense slippage - my stop wasn't executed until IB re-opened the NZD/USD pair at 17:15.

I don't think I can trade that.