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Following from Julian and Seths post in Terry’s jornal.
I have been trading a long/short MOC system for about a month now. I have coded in RT and I am running five positions long and five position short at 10% each. Each day I am placing 15 long and short positions with the API. (Running two Apis, one long one short). Because I am running a cash account and not leveraging I found it not worth while only placing the number of orders for my maximum positions as with the AB CBT code. The exposure was too low so returns weren’t great.Placing more orders than positions does introduce a element of selection bias but as Julian said in RT is easy to rank these orders. Because RT is so fast at back testing you can easily do 1000 MCS simulations to test the possible variance to get an idea of the possible results.
I’ve been keeping a spreadsheet of my daily returns versus the back test on days where there are > 5 entries from my 15 orders. I want to know if on average my returns are going to be worse than the back test when SB is occouring. Because I’m still sceptical if I can achieve the returns that the back test shows. So far it seems on days when there more possible entries than positions you will get the worse end of the distribution of returns.
Example. Last session 4/12
Live:
7 trades total – 2 long 5 short
Return: -1.15%BackTest:
7 trades – 2 long 5 shortTotal possible trades from 15 long order + 15 short orders
15 trades – 2 long 13 shortI do 1000 backtests over 1 bar to see all the possible outcomes from taking different trades.
MAX RETURN: +0.59%
AVG RETURN: -0.85%
MIN RETURN: -2.41%MY RETURN: -1.15%
Remember this is only over one bar, so the distribution of returns can be quite large. The blue line on the picture below is where my returns came in the day. This is 1000 runs over the last bar. I guess the theory is over the long term you will get a random outcome and it will average out. Whether or not this happens in live trading I guess time will tell and is why I am keeping the spreadsheet.
If it turns out that in live trading you get a worse end of the deal. Then you can easily incorporate that into the back tests in real test. To get a better/more accurate back test.
