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All posts by EasyLanguage Mastery Contributor

Using a Self-Similarity Metric with Intraday Data to Define Market Regimes

The images above are the famous Sierpinski Triangle and the Koch Snowflake. These objects are “self-similar” and this means that examination at finer levels of resolution will reveal the same shape. Both are examples of “fractal” geometry, and are characteristic of many phenomena in the natural world such as mountains, crystals, and gases. Self-similar objects […]

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9 Mistakes Quants Make that Cause Backtests to Lie

“I’ve never seen a bad backtest” — Dimitris Melas, head of research at MSCI.A backtest is a simulation of a trading strategy used to evaluate how effective the strategy might have been if it were traded historically. Backtesting is used by hedge funds and other researchers to test strategies before real capital is applied. Backtests […]

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A Flexible Trailing Stop Function

The Anatomy of a StopA stop can be defined by specifying four basic parameters, illustrated in Figure 1 below:Price Reference: The price from which the stop is offset (white line) to create a stop value.Stop Offset: The distance from the Price Reference to the stop value.Price Trigger: The value of price that will trigger the stop. […]

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In-Sample and Out-Of-Sample Testing

I am frequently asked if I do out-of-sample testing. The short answer is not always, and when I do it is not how most people do the test. There are lots of considerations and pitfalls to avoid when doing out-of-sample testing. Out-of-sample testing is not the panacea it is made out to be. There are […]

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Why You Should Really Optimize and Even If You Don’t

optimization

Today’s topic is on optimization. Some system developers don’t believe in optimization. However, I’m going to show you why you should really learn how to optimize, and second I’m going to demonstrate that even if you don’t believe in optimization then “not optimizing” is not the solution. “Not optimizing” is not the opposite of optimization!First, […]

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Are your backtest results fooling you?

Fool

Have you ever started trading a strategy that performs well in the backtests but delivers a very different result when you begin trading it with real money?Could your backtest reports be fooling you by indicating a strategy is great but really only showing you part of the overall picture?How do you give yourself a better […]

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World’s Simplest Trading System

a-tree-on-the-horizon

[NB. OK, it’s possible that this isn’t absolutely the simplest trading system imaginable, but apart from buy and hold it is unlikely there are many systems much simpler than this one!]  The following chart illustrates such a portfolio for the FTSE 100 Index since 1995. The diamond markers indicate the decisions made at the end […]

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Strategy Testing – Violating These Steps Will Damage Your Account

One of the most rewarding experiences for a TradeStation trader is to pick up a performance report that proves their great strategy idea is indeed a profitable strategy. Strategy testing done properly, as is outlined in this article, can verify the efficacy of your trading strategy and give you confidence to start trading it. But be forewarned, […]

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Stops – When Not to Use Them

Using a stop on a position is a very popular risk management technique used by traders. My research and experience has led me to believe they are appropriate for some – but not all – types of trades. Today I will discuss when I believe they aren’t appropriate. In Larry Connors’ new book, “Short-term Trading Strategies […]

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What Is Walk Forward Optimization?

One of the biggest issues with system development is that many trading strategies do not hold up into the future. This could be due to several reasons: The system is not based on a valid premise Market conditions have changed in a dramatic way that invalids the theoretical premises on which the system was developed […]

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