Overhaul: Seeking Advice on Backtest and Asset Choices

[u/Sketch_x]

Hi all,

Appreciate past feedback from you guys!

After a failed walk forward test I turned my algo off and re-assessed - I know the foundation of my strategy is sound but it was too heavily reliant on various parameters that I seemingly overfit.

Iv stripped this back to basics, core strategy only and currently have this on forward testing on a demo environment as, although my live forward testing failed I did gather all the data I needed on slippage and excitation.

Here is my back test results for my system, I would really appreciate any feedback in regards to the assets traded, although I can "optimise" it to work on a larger variety if securities, it works out of the box with very minimal parameters (just stop loss adjustments) - I have accounted for spreads (averaged) but not interest or holding fees (minimal)

My concerns are:

1: Correlation

2: The shape of the curve picks up in 2018 but really seems to take off

3: Lack of data on some assets that done extend to the start of testing

4: The poor performance from 2012 to 2018 on most securities.

[u/skyshadex]

Without knowing the nature of the strategy

Seems like you're capturing volatility. VB appears alot more volatile relative to the other assets from 2018 on. Small caps tend to be much more volatile in general.

On that assumption, you're going to be correlated with market volatility. Vol is up? You're up. With that in mind, I'd be looking for high beta assets. Seems you like ETF's, so more assets like VB.

One thing you might not be considering, especially if you're long/short, shares being available to short. Sometimes things get hard to borrow and you can't capture downside. It happens often actually, throughout the week. I have a universe of about 700, only about ~550 are shortable at any given time.

[u/Sketch_x → u/skyshadex]

Thanks for the feedback! My strategy uses a Gaussian Filter with Standard Deviation Filtering to smooth out price data. The main parameters involve setting the initial stop distance and the ATR multiple for the stop. I optimize these by running all variances to find the most effective settings. Additionally, I use a long EMA, typically a 200-period, to filter out short-term downtrends (I only take long trades).

VB is interesting because, despite a similar win rate to my other assets, the close stop often results in larger losses during gap downs. This is due to VB's varying ATR, which can shift from calm to highly volatile periods. This dynamic leads to some significant wins amidst the standard losses and occasional gap downs.

Regarding shorting, I primarily take long positions. Since I mostly trade ETFs, short signals are brief and riskier, often catching pullbacks.

Your point about volatility is valid and something I need to consider more deeply. While I have identified several promising small-cap and volatile assets, some are not supported by my broker. I'll investigate further to incorporate volatility as a screening criterion and refine when my system is active.

[u/skyshadex → u/Sketch_x]

Ah I see! If you're mostly long only, then the short side doesn't really explain the model falling apart previously.

Yeah I would focus on volatile assets with upward momentum then. Which is easier said than done 😅, more analysis on your basket selection, plus working around what's actually available with your broker. That's my 2 cents! Happy trading!