Value of Backtesting and Stops

[pepper_john]

Quote from waxwing:

I agree with this both empirically (have observed it often) and philosophically (imposing a target price on the market has no value *to the market* (only helpful to your risk management calculations), so just imposes transaction costs).

But:-

This is interesting to me; on what basis do you make that statement? Is it empirical or theoretical(mathematical)?

For example if we have a histogram of returns with one peak at, let's say, +$1000 and one at -$1000, it doesn't follow that by setting a stop somewhere around, let's say, -$500, we will increase the expectancy of the system, as far as I can see - the price paths are hidden in histograms.

I also don't know exactly what you mean by saying that autocorrelations (in time series of returns?) give value to stops, but maybe I'm being dumb there

two peak market: exit after the second peak.

positive autocorrelation: in a down trending market, exit whenever the market is lower, as its will be even lower the next period

 

[WinDiff]

No stops will kill you !!!

Stops in will help greatly but to do it business like lots of capital is needed!!!

Quote from science_trader:

It is normal that stop-losses destroy value. In order to enhance a strategy using stop-losses, you need a distribution of strategy returns that is bi-modal (i.e. with two peaks) or very strong auto-correlations.

If you don't want to take risks, don't trade ! The "rules of thumb" have just no value.

 

[taowave]

For example if we have a histogram of returns with one peak at, let's say, +$1000 and one at -$1000, it doesn't follow that by setting a stop somewhere around, let's say, -$500, we will increase the expectancy of the system, as far as I can see - the price paths are hidden in histograms

which is why you need a histogram that discovers the path.....

I like to graph MAE and MFE relative to bars since entry.

 

[HoundDogOne]

> Quote from science_trader:
> 0.4% a day, Sharpe ratio (if one can rely on that) around 5...
> Any more comments about backtesting ?

>> Vow.
>> Yearly return of more than 200% with Sharpe ratio of 5.
>> Is this for single-strategy or a portfolio of strategies?

Vow 1,000,000 times, indeed. And a voom on top.
Is that one frontal lobe removed... or two?

Da Dood claims he triples his wad every year...
But here he is at Mook City Central groveling for credibility every day.

The mind boggles and reels.

 

[pepper_john]

Quote from WinDiff:

No stops will kill you !!!

Stops in will help greatly but to do it business like lots of capital is needed!!!

there are two kind of stops. (1) stop loss (2) time stop. Personally I found time stop more useful.

 

[science_trader]

Quote from pepper_john:

Vow. Yearly return of more than 200% with Sharpe ratio of 5. Is this for single-strategy or a portfolio of strategies?

Portfolio of 6 strategies. Actually this is more around 150%/year as it is not always very easy to really compound geometrically.

 

[science_trader]

Of course you would need paths in a perfect world. Usually pdf and autocorrelations of strategy returns will be fine.

 

[OddTrader]

Quote from science_trader:

Portfolio of 6 strategies. Actually this is more around 150%/year as it is not always very easy to really compound geometrically.

Based on what leverage on average, just roughly? TIA.

 

[science_trader]

Quote from OddTrader:

Based on what leverage on average, just roughly? TIA.

3-4. It depends on the period.

 

[pepper_john]

Quote from science_trader:

3-4. It depends on the period.

what about the max draw down?