Doing opposite of what the model says

[algofy]

Can you explain why? A lot of people don't seem to understand that doing the opposite of a losing strategy != profitable strategy.

Nice logical not, how many here understand what you wrote?

 

[algofy]

Effectively op is asking: if opposite of right is wrong then why not opposition of wrong is right.

Simple answer: There are millions of ways to go wrong , but only one way to do it right.....

1+1 is only 2 not 3 or 4 or 5....not 105...

Many roads lead to Rome...

 

[algofy]

You will need to know why the strategy is losing money. Fees... slippage...

It could be it's a 50/50 strategy with 50/50 payout but adding fees and slippage makes both ways a losing strategy.

Or you might have tight stops that will get triggered either way, also making both a losing strategy...

Yep I've tested both of these cases.

 

[Moataz Elmasry]

You will need to know why the strategy is losing money. Fees... slippage...

It could be it's a 50/50 strategy with 50/50 payout but adding fees and slippage makes both ways a losing strategy.

Or you might have tight stops that will get triggered either way, also making both a losing strategy...

My questions disregards fees and slippage. I am talking purely from a positioning perspective.

An example I've given is if a strategy expects the price to converge to a certain value x. If such a strategy enters the wrong positions, why not use the same strategy, reverse the positions but instead expect divergence of the prices.

 

[JackRab]

@Moataz Elmasry did you actually backtest a strategy that resulted in this query?

If your strategy is mean-reverting, and that doesn't work... by what ratios doesn't it work? Never? 50/50?
The opposite of mean-reverting is trend-following. So maybe it doesn't work on a certain timeframe, but it does on another.

Although the phrase "the trend is your friend' certainly is thrur, that doesn't mean it always works either.... depending on stoplosses etc. Unfortunately it's not that easy....

I think remark regarding the 'why' still holds.

 

[PitchBlack]

The reason why you lose is important.

If for example you lose because your stops are hit all the time, the same problem can occur if you take the opposite direction.
So doing the opposite will then always result in the same failure.

 

[Moataz Elmasry]

@Moataz Elmasry did you actually backtest a strategy that resulted in this query?

If your strategy is mean-reverting, and that doesn't work... by what ratios doesn't it work? Never? 50/50?
The opposite of mean-reverting is trend-following. So maybe it doesn't work on a certain timeframe, but it does on another.

Although the phrase "the trend is your friend' certainly is thrur, that doesn't mean it always works either.... depending on stoplosses etc. Unfortunately it's not that easy....

I think remark regarding the 'why' still holds.

Yes, I have a strategy whose premise is prices converge, but it consistently loses money. If i reverse the positions by rewriting it so that it expects divergence instead, the strategy consistently makes money.

Your point about mean-reversion is good, maybe where I am expecting mean-reversion, I should instead consider it a trend following pattern?

Also, can you expand on what you mean by ratios in the mean-reversion context?

 

[Moataz Elmasry]

The reason why you lose is important.

If for example you lose because your stops are hit all the time, the same problem can occur if you take the opposite direction.
So doing the opposite will then always result in the same failure.

I've already mentioned that this is purely from a positioning perspective - fees and slippage are ignored.

 

[JackRab]

Also, can you expand on what you mean by ratios in the mean-reversion context?

We need more details. Win/loss rates... how many trades are winners/losers and how much doe you win/lose.

So you've already backtested the reverse strategy as well?

 

[JackRab]

@Moataz Elmasry ... you trade mainly bitcoin correct? Is that what your strategy is trading in?