How long before you toss away your strategy ?

[Attila the trader]

Hi!
I have being testing out a couple of strategies and i get that one should let their system run for a while so that the results are not just noise or chance but the merits of your strategy (like tossing a coin 10 time and getting 9 tails , which doss not mean that the coin is not 50/50) but how can you know that its a failing system, how long do you have to stick to it . to know objectively that it dose not preform as you wish (hope this makes sense ).

 

[Trader H.C.]

Hi,

Good question. I also asked the same when I first started trading systematically.

Here is the best answer I've got from one of my mentors:

In behavioral strategies, you are reactive as your performance (both P&L and hit-rate) gives you an idea of how's the strategy doing. The answer to your question is to compare the performance against the backtested performance (using a walk-forward optimization). If your performance or the statistical behavior over a statistically significant period (maybe over a period of 20 or more trades) does not look like what you got in backtests, your strategy might be dead.

In market prudent strategies, you are proactive as you are not making decisions based on P&L. You have a separate decision layer. A simple example is: "You long or short a tech stock based on the amount of chat activity in the forums". Thus, when the forums activity dips, you close your long trade, regardless of performance. You are making a decision based on a non-P&L layer. In this case, if the relationship between your decision layer and asset breaks over a statistically significant period, you know that your strategy is dying.

If you find this useful, consider subscribing to my channel for more related content.
https://www.youtube.com/channel/trader_hc

 

[Attila the trader]

Hi,

Good question. I also asked the same when I first started trading systematically.

Here is the best answer I've got from one of my mentors:

In behavioral strategies, you are reactive as your performance (both P&L and hit-rate) gives you an idea of how's the strategy doing. The answer to your question is to compare the performance against the backtested performance (using a walk-forward optimization). If your performance or the statistical behavior over a statistically significant period (maybe over a period of 20 or more trades) does not look like what you got in backtests, your strategy might be dead.

In market prudent strategies, you are proactive as you are not making decisions based on P&L. You have a separate decision layer. A simple example is: "You long or short a tech stock based on the amount of chat activity in the forums". Thus, when the forums activity dips, you close your long trade, regardless of performance. You are making a decision based on a non-P&L layer. In this case, if the relationship between your decision layer and asset breaks over a statistically significant period, you know that your strategy is dying.

If you find this useful, consider subscribing to my channel for more related content.
https://www.youtube.com/channel/trader_hc

what us walk-forward optimization ? , if your p and l differ significantly when compared with the back testes (assuming that the back tests were done objectively ) the issue is with you and your psychology and not the strategy so the strategy should not be discarded , IMO

 

[Trader H.C.]

It simply means forward testing your strategy with unknown data / future data.

 

[NVP]

i ditch most trading videos I watch inside 2-3 minutes ....and most of that is normally some idiot talking about a no lose strategy .....

 

[TickCOM]

Traditionally you stick to a strategy till it stops working.Then develop new ones. Use forward testing.

Conceptually today, you do it in a different manner, where you do not forward test - excpet for the purpose to test if the program running the strategy works as expected.

 

[AdamCantor]

It simply means forward testing your strategy with unknown data / future data.

simply put!

 

[canonx]

It simply means forward testing your strategy with unknown data / future data.

Spot on 👌

 

[TickCOM]

Can you always analyze your strategy in order to determine where it needs to be improved?

Sure, it is common practice by hedge funds to update their automated strategies, for intraday strategies some make a weekly update, others 2-4 weeks. Which imply a strategy has a base idea, and a set of udjustable criteria - which further imply one would have a portfolio of different strategies running having same base idea. To do this in a operational manner, you need an IDE which support this.

 

[Pat494]

Big draw downs are bin fodder.

 

[Henow1969]

I think if we are using a strategy and it was working in the past but now it is not working so we should make a new strategy and test before start completely.

 

[Akwin]

When making your plan, start by calculating reward and risk levels prior to entering a trade, then use those levels as a blueprint to exit the position at the best price, whether you're profiting or taking a loss. Market timing, an often misunderstood concept, is a good exit strategy when used correctly. Stop-loss and scaling methods also enable savvy, methodical investors to protect profits and reduce losses.

 

[mpups]

I mostly trade with the same strategy till it brings me consistent profit and when it stops or when I see a huge downfall in my profits, I make a new strategy and move on from the old one.

"huge downfall" makes me think its due to poor risk management but I'm not sure what you mean

 

[CavaliereVerde]

Negative result after 250 trades.

 

[IceThor]

Depends on why you are using that strategy in the first place.

 

[CavaliereVerde]

Depends on why you are using that strategy in the first place.

mmmhhh... to make money? 😁

 

[IceThor]

mmmhhh... to make money? 😁

Lol.....I mean are you using it because it worked on demo for a year? Are you using it because a pro trader uses it successfully? Are you using it because it gives you an edge on the market?

 

[CavaliereVerde]

Because it makes sense and has profitable backtests made by me.
Without backtesting one year of profitable demo would make sense.

 

[ffsear]

Because it makes sense and has profitable backtests made by me.
Without backtesting one year of profitable demo would make sense.

I'd say a year is probably excessive for a more discretionary system that can't be backtested. Best to throw a small amout of money at it (that you can afford to lose) to see how you react with real money.

 

[IceThor]

Because it makes sense and has profitable backtests made by me.
Without backtesting one year of profitable demo would make sense.

Bakctesting is not enough of a guide by itself though.