how much trades for validate a strategy

[clowner]

@kut2k2: I am not joking sorry, i am just thinking about it, i don't know if it's really posible to design and validate and EOD strategy, just wondering how to do it.

It seems to me i have always have to force the number of trades. I mean, if we always think about one unique asset(one stock, one future, one currency pair, etc.) not a basket, with daily EOD bars is it difficult to get more than 60 trades in a year:

If we take between 30 - 60 trades per year to get minimum statistical significance:

60 trades per year = 252 / 4 (average holding time - 4 days) = 63 trades.
30 trades per year = 252 / 7 = 36 trades.

If we take 60 per year, i will have to force my strategy for holding no more 4 or 5 bars, and i think there is a second problem with this, if we don't hold the trades for more that 4 days, we have to reduce our asset universe because the range, during 4 bars... can the asset move enough to reach our profit target?

Please, any thoughts about that? i would like to read the experts. is there a solution? Maybe baskets?, grouping assets to get more trades.

Best.

 

[kut2k2]

Quote from clowner:

@kut2k2: I am not joking sorry, i am just thinking about it, i don't know if it's really posible to design and validate and EOD strategy, just wondering how to do it.

It seems to me i have always have to force the number of trades. I mean, if we always think about one unique asset(one stock, one future, one currency pair, etc.) not a basket, with daily EOD bars is it difficult to get more than 60 trades in a year:

If we take between 30 - 60 trades per year to get minimum statistical significance:

60 trades per year = 252 / 4 (average holding time - 4 days) = 63 trades.
30 trades per year = 252 / 7 = 36 trades.

If we take 60 per year, i will have to force my strategy for holding no more 4 or 5 bars, and i think there is a second problem with this, if we don't hold the trades for more that 4 days, we have to reduce our asset universe because the range, during 4 bars... can the asset move enough to reach our profit target?

Please, any thoughts about that? i would like to read the experts. is there a solution? Maybe baskets?, grouping assets to get more trades.

Best.

Here's the thing about statistical significance: nobody knows for certain how many trades you need. Some people like to pretend they know but they're just guessing.

We know we need more than the 30-40 bare minimum number of trades if trades followed a Gaussian distribution because of course trades don't follow a Gaussian distribution. But this utter nonsense about needing thousands of trades to validate a strategy is annoying, and I'm calling bullshit. At some point you've passed the point of diminishing returns for how many trades you need and as far as I'm concerned, it happens before you reach four figures.

Of course if you insist on thousands of trades then yes, you're going to have trouble validating your eod systems.

 

[dbphoenix]

Quote from kut2k2:

We know we need more than the 30-40 bare minimum number of trades if trades followed a Gaussian distribution but of course trades don't follow a Gaussian distribution. But this utter nonsense about needing thousands of trade to validate a strategy is annoying, and I'm calling bullshit.

Ditto.

1. Why do you want to place so many trades?

2. What evidence do you have that computerized backtesting is of any value whatsoever?

3. What evidence do you have that statistical significance is of any importance or even relevance to real-time trading?

4. What evidence do you have that your trading criteria yield the kind of results you're seeking? (I read it somewhere or somebody said so or so-and-so claims are not pertinent.) How do you know you're not following a mirage?

 

[bwolinsky]

Quote from dbphoenix:

Ditto.

1. Why do you want to place so many trades?

2. What evidence do you have that computerized backtesting is of any value whatsoever?

3. What evidence do you have that statistical significance is of any importance or even relevance to real-time trading?

4. What evidence do you have that your trading criteria yield the kind of results you're seeking? (I read it somewhere or somebody said so or so-and-so claims are not pertinent.) How do you know you're not following a mirage?

Memoirs ignore all of the above questions except 1.

Looking for leptokurtic distribution with positive skew and slight excess kurtosis is the sign of a robust system which you have. Add another year and disregard concern over Gaussian distribution since your system is probably not and you say so yourself dependent on 50/50 win percentages.

 

[Dhalsim]

Quote from dbphoenix:

Ditto.

1. Why do you want to place so many trades?

2. What evidence do you have that computerized backtesting is of any value whatsoever?

3. What evidence do you have that statistical significance is of any importance or even relevance to real-time trading?

4. What evidence do you have that your trading criteria yield the kind of results you're seeking? (I read it somewhere or somebody said so or so-and-so claims are not pertinent.) How do you know you're not following a mirage?

More mysticism........

Go back to making journals about trend-lines and then never posting a live call.

I swear some of the people on this site have delusions of grandeur.

 

[dbphoenix]

Quote from Dhalsim:

More mysticism........

No mysticism. Either he has some evidence of some sort that he's on the right course or he doesn't. If he doesn't, he can spend the next ten years or more in the weeds.

One must make certain assumptions in order to progress. Are those assumptions going to be based on one's own experience and one's own research or are they going to be based on what somebody said or what somebody wrote? If the latter, then the trader is going to be wandering up a lot of blind alleys.

 

[Dhalsim]

Quote from dbphoenix:

No mysticism. Either he has some evidence of some sort that he's on the right course or he doesn't. If he doesn't, he can spend the next ten years or more in the weeds.

One must make certain assumptions in order to progress. Are those assumptions going to be based on one's own experience and one's own research or are they going to be based on what somebody said or what somebody wrote? If the latter, then the trader is going to be wandering up a lot of blind alleys.

You sound like a 90s Kung Fu movie charater - "wax on, wax off".

Yeah we can sit around sprouting allegories all day long. Are you actually going to tell us how many trades to validate a strategy??

 

[dbphoenix]

Quote from Dhalsim:

You sound like a 90s Kung Fu movie charater - "wax on, wax off".

Yeah we can sit around sprouting allegories all day long. Are you actually going to tell us how many trades to validate a strategy??

It has nothing to do with allegories; it has to do with research and testing, particularly with characterizing a market: what is its average daily range, who trades it, does it tend to trend or range, does it tend to revert to the mean, etc? If you don't know what any of that means, then you don't know that "how many trades to validate a strategy" is meaningless, so any answer would be equally meaningless. The answer could be "one".

Since you've been at this for seven years, you ought to know an answer that is satisfactory to your circumstances. How many trades did it take to validate your strategy? If you still don't have a strategy that enables you to make a living at your trading, why not?

 

[Dhalsim]

Quote from dbphoenix:

It has nothing to do with allegories; it has to do with research and testing, particularly with characterizing a market: what is its average daily range, who trades it, does it tend to trend or range, does it tend to revert to the mean, etc? If you don't know what any of that means, then you don't know that "how many trades to validate a strategy" is meaningless, so any answer would be equally meaningless. The answer could be "one".

Since you've been at this for a couple of years, you ought to know an answer that is satisfactory to your circumstances. How many trades did it take to validate your strategy? If you still don't have a strategy that enables you to make a living at your trading, why not?

Okay so why don't you give us an example of your unlimited knowledge and experience.

I am trading the ES on a 1min time-frame - average trade hold time 15 minutes. It is a mean reversion strategy with 50 % win rate.
Now assume it has fixed stops and target 5 points each.
Lets say profit factor is 1.6.

How many trades per year would you require as minimum to validate this strategy?? Surely you can give us some idea into your breakdown on the ES market? What kind of stats would make you confident in making and trading a strategy in this market?
What kind of draw-down would make you not want to trade this type of strategy.
What sharpe ratio would you be aiming for?

As to whether my strategies are working - i don't know i have only been live with my automated strategies for past couple of months so we shall see how it goes. All my stuff if documented here and i made no illusions to the fact i cannot trade discretionary based because of my lack of discipline. I have traded discretionary based for many years and hence all my programmed strategies are based on my observations during that period.

I am not a statistician or a math genius hence why i rely on data from my back-tests and common sense to figure out whether to take a strategy live. I have learned alot about back-testing and the pitfalls from many on this site and other sites.

From you sir i have not learned anything but BS. I read your journal and tried to program some of the stuff you writing about but it was to inconsistent and not detailed enough. My trading style is very different from yours and to be honest i don't believe in trend-lines and many other simplistic patterns. I just tried to test if the simple things you mentioned would actualy work from a automated standpoint (they did not in my case).- your trading is more gut based. You posted no live calls and always told us how many points you made after the fact. I think you are Jack Hershey's twin brother.

 

[dbphoenix]

Quote from Dhalsim:

Okay so why don't you give us an example of your unlimited knowledge and experience.

I am trading the ES on a 1min time-frame - average trade hold time 15 minutes. It is a mean reversion strategy with 50 % win rate.
Now assume it has fixed stops and target 5 points each.
Lets say profit factor is 1.6.

How many trades per year would you require as minimum to validate this strategy?? Surely you can give us some idea into your breakdown on the ES market? What kind of stats would make you confident in making and trading a strategy in this market?
What kind of draw-down would make you not want to trade this type of strategy.
What sharpe ratio would you be aiming for?

As to whether my strategies are working - i don't know i have only been live with my automated strategies for past couple of months so we shall see how it goes. All my stuff if documented here and i made no illusions to the fact i cannot trade discretionary based because of my lack of discipline. I have traded discretionary based for many years and hence all my programmed strategies are based on my observations during that period.

I am not a statistician or a math genius hence why i rely on data from my back-tests and common sense to figure out whether to take a strategy live. I have learned alot about back-testing and the pitfalls from many on this site and other sites.

From you sir i have not learned anything but BS. I read your journal and tried to program some of the stuff you writing about but it was to inconsistent and not detailed enough. My trading style is very different from yours and to be honest i don't believe in trend-lines and many other simplistic patterns. I just tried to test if the simple things you mentioned would actualy work from a automated standpoint (they did not in my case).- your trading is more gut based. You posted no live calls and always told us how many points you made after the fact. I think you are Jack Hershey's twin brother.

To begin with, I wouldn't trade this since I don't hold for any particular length of time; I hold as long as the trade's good. This may be all day or it may be a couple of minutes. Nor do I use stops, fixed or otherwise, other than a catastrophe stop, nor do I concern myself with targets. Therefore I can't tell you how many trades it would take to validate this since I have no interest in this sort of approach, nor do I have any particular interest in the ES.

Sorry you haven't learned anything from my threads, though you should have realized very quickly that none of it can be programmed or automated. And it's unfortunate that your experiences with discretionary trading were unsatisfactory. However, that you were never able to make a success of it doesn't mean that no one can. As to live calls, there are plenty. All you have to do is read the threads. If you don't want to, that's fine. Don't care. Whether or not you "believe" in trend has nothing to do with whether or not it exists.

None of which has to do with the question to which I originally responded. The poster was making several assumptions which apparently had no basis in research that he had done himself. I was asking what the bases for those assumptions were. Why this should set you off I have no idea, unless you have no bases -- other than belief -- for the assumptions that you've made and are making yourself.

But there's no particular need to go on with this. If you think I post nonsense, that's your privilege. It won't keep me up at night.

Edit: Incidentally, about my approach:

1. Draw a straight line tracking demand or supply (up or down)

2. When the line is broken, begin looking for a retracement. When the retracement occurs, enter.

3. If price doesn't move as expected, exit.

That's it. 3x5 card.