If memory serves, I said that your backtesting methodology, as you described it, looked rigorous and reasonably well-designed. However, I never saw anything more than the general description (you were unable/unwilling to provide anything more than that), so I wouldn't have been able to say whether this methodology has been conscientiously applied.
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HowardCohodas Index Options Credit Spread Trading Journal
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It all comes down to earn enough premium before the blackswan big loss. And/or having the ability to predict an upcoming vol gap and stay on the sideline for that period. Not sure what else can be said about this topic.
So howard either you get very lucky, or you can predict the market/blackswan correctly. Good luck and happy trading.
So howard either you get very lucky, or you can predict the market/blackswan correctly. Good luck and happy trading.
Thank you.Quote from Martinghoul:
If memory serves, I said that your backtesting methodology, as you described it, looked rigorous and reasonably well-designed. However, I never saw anything more than the general description (you were unable/unwilling to provide anything more than that), so I wouldn't have been able to say whether this methodology has been conscientiously applied.
I don't think you have the complete set of alternatives. Therein lies the rub.Quote from newguy05:
It all comes down to earn enough premium before the blackswan big loss. And/or having the ability to predict an upcoming vol gap and stay on the sideline for that period. Not sure what else can be said about this topic.
So howard either you get very lucky, or you can predict the market/blackswan correctly. Good luck and happy trading.
Quote from newguy05:
It all comes down to earn enough premium before the blackswan big loss. And/or having the ability to predict an upcoming vol gap and stay on the sideline for that period. Not sure what else can be said about this topic.
So howard either you get very lucky, or you can predict the market/blackswan correctly. Good luck and happy trading.
His edge lies in a backtest in which he simply avoids trading any historical dataset that gives him the heebie-jeebies!
Innovate!
Quote from Martinghoul:
If memory serves, I said that your backtesting methodology, as you described it, looked rigorous and reasonably well-designed. However, I never saw anything more than the general description (you were unable/unwilling to provide anything more than that), so I wouldn't have been able to say whether this methodology has been conscientiously applied.
This is sad commentary on the state of affairs here on ET.
Quote from HowardCohodas:
And this is bad? How?
omfg.
1) It's intellectually dishonest and fraudulent. You're attempting to persuade subscribers based upon a fatally-flawed backtest.
2) You cannot avoid it when trading live. Therefore the backtest is complete f*cking garbage. My 14yo niece knows better.
Quote from Martinghoul:
If memory serves, I said that your backtesting methodology, as you described it, looked rigorous and reasonably well-designed. However, I never saw anything more than the general description (you were unable/unwilling to provide anything more than that), so I wouldn't have been able to say whether this methodology has been conscientiously applied.
To put the dialog in context and to present here what it was that I did, I went back and looked up the posts.
Quote from Martinghoul:
Correct me if I'm wrong, but, in summary, you performed the backtests externally using end of day data from ToS (PoT and option prices, I would assume)? Which time periods were used for out-sample runs and what was your in-sample period, if I may ask?
Quote from HowardCohodas:
Yes. I performed the back tests external to ToS with data extracted from ToS. I used data from 2005 through 2009 on RUT and NDX.
Out of sample data was chosen randomly for each run. The tests were done on monthlies so each "data segment" was approximately 60 days to encompass the life of the spread. Thus there were 30 data segments. The number of segments in the in-sample set was also randomly determined in the range of 16 to 24 for each run. The remainder were in the out-of-sample set.
The problem with a fixed in-sample set is that it still lends itself to "curve fitting" tendencies. Randomizing the membership of each set and the set size with each run greatly minimizes this tendency.
Some with whom I've discussed this approach have suggested it is overkill. However, it's easy to accomplish in the software and it increased my confidence that I was not falling victim to curve fitting. This is not the first time I used this technique. Before implementing this approach, I managed to fool myself when evaluating other strategies some years back.
Quote from Martinghoul:
Fantastic, Howard... Looks like a robust methodology indeed.
Now, since I am intending to, effectively, subject your backtest to a critical re-examination, I could do it using the POT values I calculate myself or ones calculated by ToS. Obviously, I don't have an account with ToS and don't really intend to open one. Would you be willing, in order to make our experiment as conclusive as possible, to give me the ToS POT data for a particular time period I require?
Quote from HowardCohodas:
Absolutely. With all you have done to help me and with the civility you have shown, I could do no less. Besides, I want to know if I messed up.
It is irresponsible to assume that the first of four stages of qualification is the dominant contribution to the total qualification of the strategy.Quote from atticus:
His edge lies in a backtest in which he simply avoids trading any historical dataset that gives him the heebie-jeebies!
Innovate!
It is further irresponsible to suggest that one of the results of back testing should not be to identify conditions under which the strategy may not apply. Not identifying areas where the strategy does not apply is one of the common mistakes amateurs make when doing back testing. Next to "curve fitting" exuberance, this seems the most common error I have seen others make. And it is the mistake I made when beginning to learn about back testing.
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