You may have noticed over the past few weeks of 'Thursday Trading Thoughts' that we’ve been following a theme.
In episode 113 we heard about a test Kevin Davey calls the ‘Monkey test’, which can be used to measure the effectiveness of entries and exits.
Then in episode 114 we reviewed a technique that Dave Bergstrom shared to measure the decay of a trading edge so that we can determine when an edge has gone, and not overstay our welcome at the party.
In this weeks trading thought we’re going to discuss the process of combining edges, filters, conditions into a trading system.
A common practice when building trading strategies is to combine indicators or filters to see how that particular combination impacts performance, however this practice can be overused or abused, leading to curvefit strategies that don’t perform so well in live trading.
In today’s episode we're going to hear one solution for this problem, from our guest Art Collins, who is going to tell us the process he uses to combine edges while reducing the risk of overfitting, so let's hear from Art.
Glad you could join us today for our chat about intelligent systems that maintain themselves.
Sounds good doesn’t it?
Well actually, that’s not all we’re going to discuss today, we’ve got so much more than that.
Our guest for this episode is David Stendahl, from Signal Trading Group.
David is a CTA with more than 20 years of experience designing and trading systems, and not only is he an international speaker and the author of 4 books but he also co-created the backtester in Tradestation many years ago.
In this episode he’s got a lot to share with us, here are just some of the points we cover:
Last week we reviewed a technique Kevin Davey shared to measure the effectiveness of entries and exits using something he calls ‘the monkey test’.
This week we’re going to look at entries and exits from a slightly different angle:
In this episode we’re going to review a technique that Dave Bergstrom uses to measure the decay of a trading edge.
We pick up the conversation talking about validating trading strategies for robustness, take a listen!
Today, we’re going to have a quick chat about the effectiveness of entries, and a simple technique you can use to determine how good an entry or exit really is.
I’ve been working on some breakout strategies lately and I’ve noticed in some of them that the entry really isn’t that important at all…
That is, I can be pretty loose with the entry values and get similar results…
So there are other components to the strategy that are actually driving the performance.
Now, this got me thinking about measuring the effectiveness of entries and exits, so today I want to share a technique that Kevin Davey calls the “monkey test”.
And no, you don’t need actual monkeys for this!
Let’s hear how Kevin uses the monkey test to check how good his entries and exits really are.
Glad you could join us today where we get to chat with Stefano Serafini – the current leader of the World Cup Championship of Futures Trading®*
I met Stefano in New York at a trading masterclass a few years back and he’s been doing some great things with his trading.
As I mentioned, he’s the current leader of the World Cup Championship of Futures Trading®*
Sometimes in these trading competitions you see traders rocket to the top of the leaderboard really quickly, but they usually disappear just as quick.
Anyone who’s been watching the competition this year would have noticed that Stefano has been pretty consistent so far, so we’re going to discuss his trading approach, especially around intraday trading strategies and portfolio construction.
In our chat you will learn:
As systematic and algorithmic traders, we have a number of tools and processes we can use to test and validate trading strategies.
For example, in-sample/out-of-sample testing, walk forward analysis, cluster analysis and a bunch more.
(And don’t forget all the fancy named techniques that have been lumped in with Machine Learning that are sometimes just rebadged techniques that have been around for ages already!)
Anyway, one of the tools that we have at our disposal is Monte Carlo analysis.
When you’re using a tool it can be good to understand how it works...
What are it’s strengths?
What are it’s weakness?
Today I’m going to share with you a little bit of audio from Dave Walton of Statistrade, explaining the benefits of Money Carlo analysis, and also a few of the weakness or false assumptions around Monte Carlo analysis that we really need to be aware of if we want to manage Monte Carlo effectively.
Let’s take a listen to what Dave has for us.