The accuracy of trading performance back testing

Quote from bzinchenko:

It is well known that a random value can have peaks. In most practical cases, Gaussian random value is estimated to have the maximum magnitude equal to its triple standard deviation. Such approximation is very robust in routine least squares calculation of experimental results in laboratory, but it can have dramatic impact in trading experience. On a relatively short trading session, one can safely use traditional Gaussian risk measures. However, on a long time prospect the probability of a peak deviation will inevitably increase in a nonlinear proportion.

Practical result of such a peak deviation will be typical bankruptcy or, at best, heavy losses.
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The stuff you are posting out of some options textbook...
Has been common knowledge since the 80s.

Yawn 1,000,000 times.

And the last sentence applies ONLY to unhedged or poorly hedged positions.

Why don't you do 100,000 trades...
And then come back and post something useful.
 
Quote from DeeDeeTwo:

Virtually ALL pro trading firms...
Practice some combination of market making and risk arbitrage...
Within a very well-hedged, market neutral framework.
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The most of pro players really work on arbitrage but i m not sure every individual trader can afford this kind portfolio. My arguments apply to both kinds.

Quote from DeeDeeTwo:

But the point is...
EVERY time I bought stock... I shorted an equal amount of something very similar.
So there is ZERO effort put into determining market or individual stock direction...
All effort goes into staying as market neutral as possible...
Which is not trivial.

This type of market neutral scalping is very profitable...
ESPECIALLY is in a high volatility environment like we saw last year.
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Such approach in any case includes statistical inference based on some sort of correlation or other way to establish dependency pattern between trends in selected securities pair. Forecasting as such is not ultimate aim of modeling, of course, but you also rely on expected (forecasted) balance in up and down trends.

Quote from intradaybill:

The rest you say about money management are conclusions disconnected from your argument and make non sense. If you like you can state again your point in such a way that it makes sense for traders in this forum.
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Your reply was very constructive. I have tried to clarify point in the next post. Thank you.

I am not sure that everybody here makes millions of trades. Techical indicators are very widely used. And text book citations about their inconsistency are quite rarely remembered. So I hope reminding these points was anyway useful.
 
Quote from DeeDeeTwo:


This market-neutral framework is not some big secret...
But a classic approach...
And a variation of this is used by virtually every pro trading firm.
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Yeah, and just look at how all those (quant) market neutral funds fared in the last few months.
 
Quote from BJL:

Yeah, and just look at how all those (quant) market neutral funds fared in the last few months.
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You are confused in every conceivable way.

"Hedge funds" are not "pro trading operations".

Most "hedge funds" are skimming operations...
That have no viable money making strategy...
But only a business model designed to profit from the ** huge fees ** they charge.

Only a minority of "hedge funds"...
Could be considered a "pro trading operation"...
That would be capable of maintaining market-neutral positions.

In spite of that...
The hedge fund industry vastly outperformed the S&P 500 in 2007...
Probably because many funds made a killing off all that volatility.

http://www.finfacts.com/irelandbusinessnews/publish/article_1012323.shtml

My firm's profits were TRIPLE normal in 2007.
 
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