Backtesting

[newwurldmn]

All of that sounds good but it's nearly impossible to catch anyone doing it. Even if they did, it would never come out and the employee might be terminated quietly, at most.

I think it’s a lot harder than it looks for an employee to do it.

the catch all is that these firms monitor and restrict the employees trading. So the employee either has to quit or run the copy strategy through a friend’s account. This is after they have to get access to your trades and figure out how to copy them and earn while being behind you. And if they are caught (say they forget to use the burner phone and instead use the company phone which is recorded), they not only will be fired but unlikely to work in the industry ever again.

 

[newwurldmn]

This thread contains a bunch of misconceptions about backtesting and it's role in systematic trading. But I still think it does not belong in the options section, so I refuse to contribute.

wait. It has misconceptions about trading so maybe it does belong in the options section .

 

[shMark]

@shMark are you saying you make more money trading strategies that you haven't back tested, than you make trading strategies that you have?

At this point in time, I am no longer a quant. I rely on other people’s backtests, not ones I have done.. The backtesting software I have access to, can do anything in the world. However, it was written by a PhD in Math, not a software engineer, so it is very user unfriendly. You almost need to be a software engineer to learn how to use it, so I gave up. Here is how I invest now. I have some newletters I subscribe to that have beaten the market. I buy sectors that are undervalued. Right now, they are latin /South America, small cap international, and small value international. I also have a few ETFs like MOAT, cowz, calf, SPGP and syld that have beaten the market. I buy a lot of preferred stocks, and close end bond funds for income. For options, when I retire in a year I will be using three strategies, CSPs, CCs, and my favorite, DITM leaps. And I have a lot of money in plain old index funds.

To answer your question, I would use I would use backtests as only one piece of evidence that a strategy is good, but I would not assume I will get the same results going forward.

 

[shMark]

At this point in time, I am no longer a quant. I rely on other people’s backtests, not ones I have done.. The backtesting software I have access to, can do anything in the world. However, it was written by a PhD in Math, not a software engineer, so it is very user unfriendly. You almost need to be a software engineer to learn how to use it, so I gave up. Here is how I invest now. I have some newletters I subscribe to that have beaten the market. I buy sectors that are undervalued. Right now, they are latin /South America, small cap international, and small value international. I also have a few ETFs like MOAT, cowz, calf, SPGP and syld that have beaten the market. I buy a lot of preferred stocks, and close end bond funds for income. For options, when I retire in a year I will be using three strategies, CSPs, CCs, and my favorite, DITM leaps. And I have a lot of money in plain old index funds.

To answer your question, I would use I would use backtests as only one piece of evidence that a strategy is good, but I would not assume I will get the same results going forward.

Also, I don't expect to beat the market by a lot. If I can beat it by 1 - 1.5% a year with a high sharp ratio, I am happy.

 

[SimpleMeLike]

That's pretty much it. Remember that brokers employ people and you can bet the employees look at your trade data and try to reverse engineer it. Brokers have nothing to lose. You think IB cares if some employee steals your ideas and gets rich with it? Not one bit. Their whole business is about churning the traders because there's another naive hopeful at the door waiting to lose their money. Overall trading only works for short term and you need to consistently change and change your methods. Over time this is extremely tiring and will wear anything out.

Hello d08,

Why build a trading system if the trading system will not last forever and will not make you rich?

Is it not easier to just manual trade?

 

[Handle123]

I have backtested for decades over mountain of data,I have learned much. I know what works for me and don't backtest anymore. But I do forward test few months and go live.

 

[taowave]

Most are looking for the grail,but if nothing else,Backtests can illuminate one to expect the unexpected..

Peak to trough,Max DD,consecutive losers are metrics that test ones belief system on a good day,and very existence on a bad day....

You dont know what you dont know..

Backtest....

I have written my own backtest software and thanks to this backtesting (not overfitting) ik know how to deal with crashes (most of the time i sell options). 2008, 2015, 2018, 2020 are all years where you can learn a lot from backtesting. A lot of option writers went broker because they didnt know how to handle a crash, backtesting can help you with that...

 

[eleanorK80]

You’ve got a point about long backtests not being reliable due to ever-changing markets. What do you think quant strategies should include to stay relevant and effective?