Methods to test robustness of your algo trading strategy.

[Dicer]

This is the method that Kevin Davey uses:



Here there are 2 videos in which it explains briefly how to test the Trading Systems and the errors typical to avoid in the tests:

There are excellent books to explore the valuation of Trading Systems:

- The Evaluation and Optimization of Trading Strategies (Robert Pardo)

- Trading Systems 2nd edition: A new approach to system development and portfolio optimisation (E. Tomasini-U. Jaekle)

- Trading System that Work (Thomas Stridsman)

- The Ultimate Trading Guide (G. Pruitt, J. Hill).

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The most important test, however, always remains the so-called: paper trading, to be carried out for some time.

I seldom do paper trading.

Reasons:
1. My strategy doesn't cause a market impact.
2. My strategy is interday trading, not intraday. I mainly trade at market close.

Besides, paper trading is sometimes uselss. Imagine the current price of stock A is $100.

Best Bid .............. Best Ask
$99.99 .............. $100.02

If you use a paper trading account and submit a traditional market order to buy, your buy execution price will be $100.

If you use real money to trade, the execution price will be $100.02.

That's why paper trading is sometimes useless.

But yes, if your strategy needs to be tested by paper trading, you have to.

However, for me who only trade liquid ETFs and trade at market close, I don't need to do paper trading.

 

[hilfspaul]

Backtesting is what I rely on. Continuous data flow is needed for testing the true viability of the algorithm, I use past data, depth, volume, price. And any new program or indicator I first use on small trades, I have an account with fxview exclusively for this, as there are no deposits that need to be maintained and there are no inactivity charges so it’s a good way to see the efficacy on live environment. If algo seems solid, I take it live on higher capital with IB (which is more like my main account).

 

[Steven+49]

- Trading Systems 2nd edition: A new approach to system development and portfolio optimisation (E. Tomasini-U. Jaekle)

This book is one of the best you will find. THere are going very deep in to optimization and what ist optimization and how do you do this correct.

@KevinDavey
I dont like him, his books are totaly waste of time and money.
1 or 2 Years after his first book i ask him on future.io (bigmike) how they doing this money/random test and he say , that he dont do this anymore.
There for in his "Curse" he optimization 3 paramter at once on walk-forward (and walkforward use the best! paramter....not the stable one..)

In the videos he not showing the DD or what a "step" mean. change from 5-10 or 5-100 ??

Better: bettertraderacademy / Tomas Nesnidal
or Andrea Unger