System Development with acrary

Status
Not open for further replies.
ok, in that case, maybe you could start the dicussion on building a profitable system in general? like how one should approach it, etc.


Quote from acrary:

I'm around. I've tried to start work on the next installment many times in the past two weeks. Each time I've had to drop it because I was including material I currently use to trade. I don't know when I'm going to post again. I'll keep trying to come up with something that I can post, but don't hold your breath. This is the time of year I prefer to trade and not talk about trading.

Alan
More...
 
Quote from acrary:

I'd like to know what items are difficult to understand? I know what I know but I don't have a clue as to the difficulty others may be having in comprehending the material. I know I've skimmed over much stuff but that's because I'm only trying to stimulate ideas.

Alan
More...

When you talk about trading systems & their details I am fine but I don't understand anything related to statistics - z scores, monte carlo var analysis, confidence intervals etc - but that is my problem and I am working on it trying to learn elementary statistics.

Please go ahead with your posts on actual development of trading systems. I am eagerly waiting for it. Thanks a lot for sharing such valuable information.

--TraderChip
 
I think it is unfair to ask acrary to spell it out for everyone. Why not just ask him to sell you a system if you guys won't do your own homework? Reread all of his posts. Most if not all of the information you request is there. Doing your homework and coming to your own conclusion will he clear up some of the 'mysteries'.

I really do think it would be more fruitful for all of us to discuss 'system building' after we have attempted it.

I have a question of my own for acrary,

what did you replace your neural net with?

P
 
Quote from sunnyskies:

ok, in that case, maybe you could start the discussion on building a profitable system in general? like how one should approach it, etc.
More...

Well, if you want to work here is the basics.
For every system I develop I use DUM.

D - Define

All systems are based on finding and pulling a fundamental truth about the market. Define what fundamental truth you'll be going after. Ex. All markets have a tendency to trend beyond random. Now you've got the definition that most technical-based hedge funds are derived from.

U - Understand

Determine the conditions under which the defined truth tends to occur. In the case of a trend tendency it could be when does the trend tendency begin beyond random? This will lead you to how do I measure a trend? Since trends can occur randomly, how do I determine if a trend is beyond a confidence level of randomness? Does the trending tendency beyond random exhibit the same degree of persistence beyond one year? two years? 5 years? If not, is there some point at which the persistence beyond random occurs every year? If so, does it also persist at the same frequency for 5, 10, 50 different markets? If so, you've discovered a fundamental truth and you now understand what you need to know about the behavior.

M - Mine

Once you understand the conditions under which the behavior occurs, you write the code necessary to map the understanding of the behavior. Is the code going to be all inclusive of many markets? or try to just go after the best of the best? Once mapped it's a mechanical process to determine how well it maps against the behavior. After you're satisfied you've developed a satisfactory method for mining the behavior, you can do an edge test to see if it happens beyond random. If not, use Monte Carlo sims to determine confidence levels for trading the method. Determine at what confidence level you'll stop trading. Examine the drawdown versus the profit. Is it worth risking any money on this? If so, allocate money using a money management scheme.

After you're done with this, you'll have your first system. Next, develop a complimentary system (non-correlated). Go through the same process for say a range bound system. Once you've gone through the mining stage, use the correlation test to weight the two systems. Apply the weights to the money management scheme and move on to your third system.

There you have it. The entire system development process. If any of you want to work, you now have the structure to make it happen. If not, I hope you've had a few minutes of amusement.
Everything else I would discuss would merely be adding detail to some aspect of the development. So I guess I'm done with the journal. No need to dive into details when a 30 sec. overview is all that is necessary (lol).

Alan
 
Hey I understand completely. Been there, done that, got the T-shirt. In fact, I got the whole outfit. All it took was a hell of a lot of work.:D

Good luck with the DAX trading.

Steve
 
Quote from acrary:

The "Edge Test" is a concept. The concept is to separate luck from skill in determining the backtested results. How you do define the measurement is up to you. If I had a Cray supercomputer and had 50 trades to test for a year I could probably rank all the different combinations of 50 trades within the 250+ trading days. Since I don't have that kind of computing I have to sample the trades from the pool of potential trades. If I had the desire I'd build a minute by minute database and rank each trade against the exact entry and exit time for every day of the year. Then come up with a weighting scheme for the proportion of longs versus shorts. I'm sure there's many other ways to do the same tests. In the end it all comes down to "does the random selection of trades adequately represent the luck component that I'm measuring against?". If so, then it's worth keeping. If not, then try other ways of accomplishing the same goal.

When I've used the test I've disabled the stops and exit with profit strategies so that all I'm testing are my entry and exit at end of day versus random "luck" entry at open and close at end of day. The only purpose of the test is to determine if my entries are a result of luck or skill.

Hope this helps.

Alan
More...

It helps a lot thank you for the very thoughtful response.

One thing that prompted my question is that i noticed when i restricted myself to random trades of identical duration but without profit targets i ended up with a distribution that had a decidedly negative mean (even for large samples)

This seemed sort of interesting to me. I'm trying to figure out if I'm seeing a flaw in my homebrew backtesting software or possibly it has to do with the jitter in my price data that is masked by my profit targets. (i'm trading spreads so i have to create a synthetic price and spreads by nature tend to be regressive)

thanks again
 
Quote from acrary:

I'm planning on showing how to setup a research platform using excel. After that it'll be what most of you are waiting for..."How to build your first system"
More...

Acrary,

Thanks for all the help in strategy development. Could you make some comments about how to setup a research platform using excel?

-Keifer
 
At acrary's request this journal has been closed. A huge thankyou to all his efforts and time spent posting, it has been a big contribution to ET.
 
Status
Not open for further replies.
Back
Top