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How Have Properly Backtested Systems Failed In Actual Trading?
- Thread starter magicwords
- Start date
All profitable systems exploit some market inefficiency (mis-pricing on a shorter or longer time frame). At least that's how I look at it.
That basic inefficiency might get arb'ed out, diminish or somehow manifest itself differently. Small examples include moving to decimals, ECNs, dimished influence of the NYSE etc.
The only system I've traded unmodified since 1998 is a long term S&P trend following systems. All my day-trading systems I've had to adapt, change or re-implement as the markets have changed. Also, we hopefully learn as time goes on, and find better and more general ways to express the core concepts.
That basic inefficiency might get arb'ed out, diminish or somehow manifest itself differently. Small examples include moving to decimals, ECNs, dimished influence of the NYSE etc.
The only system I've traded unmodified since 1998 is a long term S&P trend following systems. All my day-trading systems I've had to adapt, change or re-implement as the markets have changed. Also, we hopefully learn as time goes on, and find better and more general ways to express the core concepts.
Quote from magicwords:
I'm a stock trader and with the use of a mechanical trading system, I believe I've had some moderate success with respect to my return and drawdown preferences.
Still, I remain mindful that my system is bound to fail eventually. With that, how have your properly backtested systems failed in actual trading?
I believe that a lot of you seem to know how to properly backtest systems. So I'd like to know when these good-in-paper systems failed in actual trading.
Was it because you arbitrarily skipped trades? Did you change some components of the system? Or perhaps the system just, well, degraded?
In order to trade, you need to have control over your emotions plus have a system that gives reliable results at all times. I have done the back testing of a number of softwares at the following thread:
Getting Started Developing and Trading System
I have realized that âIf you have a losing system, no matter what your trading strategies are, you shall lose out in trading; and at the same time, you can lose out if you do not know how to handle a winning systemâ. Thus, it depends on the person and the system he/she is trading with.
Holy Grail: A system profitable all of the time- trend, chop and panic; without need for system change in any market condition; able to take a trader to retired status before the trader's next birthday.