Quantitative Finance

Your entire backtest is based on 2 days' worth of cable 1m bars and you are averaging a trade about every 20 minutes, is that correct? If so, you may be disappointed in a longer forward test, let alone live trading.

Also, why is your MQ "n/a" rather than the maximum 90%, essential for all MT4 testing, especially with such high-frequency method?
 
the first trade was entered 4 months ago. I'm using the system as a indicator, and directionally trading, but adherein to systems SL and TP's. With custom entries within the TP-SL range.

I'm going to post the 1 minute report in a few minutes, its still running.
 
Quote from Spectre2007:

It stays out trading asian session. There are time constraints, the system uses to stay out of slow periods historically.

It seems from the price action of that derivative, large stops are needed. And incremental price progression occurs before another SL is hit, and then another series of incremental price progressions occur.

Linear regression is one of the most powerful tools I've come across in trading.

I dont have a quantitative finance background, I started this discussion to see what other quantitative finance techniques people are using.
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I hear you. I wasn't really trying to poke the details of your idea out of you as much as get a feel for what's going on. Here are some generic suggestions.

A good site for pure quants is Wilmott.com. Of course, they tend to trade and model much more exotic instruments than what you will find in the retail crowd but if you are really into quantitative modeling that's a good site to start with. You can jump to the blogs of some of the more notable site members as well and if you search you will find links to other interesting quant sites.

FWIW, I would suggest you actively search for a period where this particular system doesn't do well and see if you could withstand the draw downs. Frankly, a 10% stop loss/trade would give me an ulcer. I couldn't trade that way at all.

Another way to approach it is to look at the cost of buying puts or calls to hedge your position. Or you could simply move over to puts and calls anyway and ignore the underlying. That would limit your risk but reduce your profitability as well. You'd have to test it out to see what the trade off was.

As to the other ways to fine tune the system dynamics you might look at the Hurst exponent and see if that provides a better fit than LR. You could also add a larger time frame analysis to give you a bigger picture of what's going on. The basic idea would be that pullbacks against the trend -- which is what you are trading in part if I read the description properly -- are less likely to succeed than one's with the dominant cycle.

Hope it adds a few ideas.

Regards,

Sam

BTW,

I noticed LateApex's comment on your testing period. I missed that. Obviously that's a nonstarter -- as is only 4 months. Basically, I try to use enough data to run through at least one up and one down cycle to see system robustness. In that period there is almost always a chop phase or two as well.
 
Bars in test 42284 Ticks modelled 84468 Modelling quality n/a

Initial deposit 100000.00
Total net profit 18940.00 Gross profit 98940.00 Gross loss -80000.00
Profit factor 1.24 Expected payoff 461.95
Absolute drawdown 0.00 Maximal drawdown 30000.00 (21.75%) Relative drawdown 21.75% (30000.00)

Total trades 41 Short positions (won %) 24 (83.33%) Long positions (won %) 17 (76.47%)
Profit trades (% of total) 33 (80.49%) Loss trades (% of total) 8 (19.51%)
Largest profit trade 3000.00 loss trade -10000.00
Average profit trade 2998.18 loss trade -10000.00
Maximum consecutive wins (profit in money) 11 (32940.00) consecutive losses (loss in money) 2 (-20000.00)
Maximal consecutive profit (count of wins) 32940.00 (11) consecutive loss (count of losses) -20000.00 (2)
Average consecutive wins 5 consecutive losses 1



I said I would post this, heres the one minute data backtest. I know about the quality of the backtest issue. I'm mainly using this model to see what the system tells me, about price behavior. The market seems to behave based on the gross sum of its participants. Trying to find the 'average behavior pattern' of its participants.
 
Quote from Spectre2007:

Bars in test 42284 Ticks modelled 84468 Modelling quality n/a

Initial deposit 100000.00
Total net profit 18940.00 Gross profit 98940.00 Gross loss -80000.00
Profit factor 1.24 Expected payoff 461.95
Absolute drawdown 0.00 Maximal drawdown 30000.00 (21.75%) Relative drawdown 21.75% (30000.00)

Total trades 41 Short positions (won %) 24 (83.33%) Long positions (won %) 17 (76.47%)
Profit trades (% of total) 33 (80.49%) Loss trades (% of total) 8 (19.51%)
Largest profit trade 3000.00 loss trade -10000.00
Average profit trade 2998.18 loss trade -10000.00
Maximum consecutive wins (profit in money) 11 (32940.00) consecutive losses (loss in money) 2 (-20000.00)
Maximal consecutive profit (count of wins) 32940.00 (11) consecutive loss (count of losses) -20000.00 (2)
Average consecutive wins 5 consecutive losses 1



I said I would post this, heres the one minute data backtest. I know about the quality of the backtest issue. I'm mainly using this model to see what the system tells me, about price behavior. The market seems to behave based on the gross sum of its participants. Trying to find the 'average behavior pattern' of its participants.
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I've got to agree with LateApex here. I don't think your analysis is meaningful due to the duration issue. With regards to finding the "average behavior pattern" I think the same criticism applies.

Best of luck with it.

Regards,

Sam
 
thanks for the link, cool sites.

The system posted is just a blunt knife. There is a repository of 1M data. And ways of improving the modeling quality if others are concerned.

That blunt knife has been sharpened.


Chris
 
Yes, you'll definitely want to get your MQ up to 90% before you do anything else in MT4. Until you address that issue, none of your development work, no matter how painstaking, is going to be meaningful.

Fortunately, it's not hard to do and only needs to be done once, for each currency or instrument of interest. A step-by-step guide from Hendrick is attached.
 

Attachments

Quote from Spectre2007:
There are a lot of people trying to apply systems to different markets. The core principles:
Stop Loss (SL)
Take Profit (TP)
Equity (E)
Lots (L)
Leverage (ratio)
Take the above, and plug them into a given market, any market. And you will realize, the volatility itself, will take most people out, with their stop losses being hit.
Lot of people advocate TP/SL of atleast 2:1, but the odds are, that since SL is half, the volatility will most likely hit your SL before it hits your TP.
The above two conditions occur most of the time in any given market, since 80 percent of the time, the price will have a minute to minute volatility great enough to take out most people's stop losses.
On a rare occassion, price instability secondary to massive order flow or news events, will trend the market, in these instances even though the minute to minute volatility may be the same, the minute to minute volatility migrates the price unidirectionally.
The urge to trade all the time, leads to failure for most people. Unless the prudent ones minimize leverage or lot size during 80% of the market periods.
The key is to have price migrate away from your entry, and let your TP be greater then 5:1.
The other technique is to use a very large stop loss and a small TP, to let the volatility keep hitting your TP in the range channel. When adopting this technique, recognizing when the periods of transition occur between price stability and instability.
Trendfollowing should be the goal of most people. Apart from that we are just spinning our wheels in these markets. Massive wealth accumulation cannot occur if we dont make a effort to capture the trend.
In summary:
Trade your system very infrequently. Unless your system is geared for range trading, with the ability to recognize transitions from price stability to instability.
Am I wrong?
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Look...this is all "good stuff", but for each strategy and approach, it will produce drastically different results. There are two sides to trading: entry and exit. In general, I agree with you....but each system/strat stands on it's own.
 
Quote from Spectre2007:

Linear regression is one of the most powerful tools I've come across in trading.
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If you are talking about multiple independent variables to derive a price proxy or expectation, then you are right. If you are talking about just using Linear Regression on the actual price as a smoothing tool, you are totally wrong. LR is terrible at smoothing because it has a huge overshoot....everyone is aware of this. There are tons of much better smoothing tools out there.
 
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