Pretty cool seeing those Vann Diagrams. Kamala would be proud. Have you tested to see if the trades (mean returns) in the intersection of the Venn Diagram are different from the mean returns in non-intersecting circles? One would think intersection trades should have a higher win rate, since they have 2 successful signals supporting them.
Excellent point! I tested it. Win rate is slightly better (56%), but the mean returns are worse.
Backtesting it produces a 15.1% annual return with a 25% max drawdown, which is slightly worse than what I shared. I believe that this happens because, once we do the intersection, we remove the trades on the tails of the distribution, which are important to the performance (especially in times when the market is bouncing back... my intuition comes from observing a weaker performance during these times by looking at the equity curve and comparing it with the previous exercises)
Interesting. It's also less data + more fitted, so higher expected future volatility.
Out of curiosity, what's the difference between a strategy that you test like this one & a strategy that you trade live? When you run it live, do you add stop losses & etc? Or just trade it as is
Never as is. At minimum, I add risk management measures (filters, different position sizing, etc), but usually not stop losses in mean reversion strats as they degrade the performance
Hi, great article as usual. would you mind sharing which library you use to generate the table comparing the two strategies (Summary of the backtest statistics) ? is it a public library and if so, which function do you use ? thank you very much for your help, I'm very new to this field and your articles are very insightful
Thanks! No, it's not public. It's a code base I've been developing since my master's degree ages ago. I'm thinking about sharing it and will probably do that soon
thank you for your reply. it would indeed be quite useful :) I'll keep an eye on your next posts and for now I'll keep reading all your articles ! cheers
Thanks, Chris! We can never know for sure whether the system permanently lost its edge or if a recent lack of performance is temporary. The way I personally do this is to keep tracking. For this system specifically, I believe it might be the first explanation (as lots of people know it). But we can never know for sure. Cheers!
I think that TOD from Connor’s could be a good alternative for this strategy as well as closing the position if todays close is higher than yesterdays high (Long only)
Appreciate all the great articles you are cranking out!!! It would be great to get your perspective on when a system has lost its edge. I see a lot of systems whose performance looks good over the last 20 years but mostly because the early years were very strong but in the last few years performance has lagged the indexes. Has the system lost its edge or is the recent subpar performance just temporary? Would be great to get your perspective on this. Thanks.
Pretty cool seeing those Vann Diagrams. Kamala would be proud. Have you tested to see if the trades (mean returns) in the intersection of the Venn Diagram are different from the mean returns in non-intersecting circles? One would think intersection trades should have a higher win rate, since they have 2 successful signals supporting them.
Excellent point! I tested it. Win rate is slightly better (56%), but the mean returns are worse.
Backtesting it produces a 15.1% annual return with a 25% max drawdown, which is slightly worse than what I shared. I believe that this happens because, once we do the intersection, we remove the trades on the tails of the distribution, which are important to the performance (especially in times when the market is bouncing back... my intuition comes from observing a weaker performance during these times by looking at the equity curve and comparing it with the previous exercises)
Interesting. It's also less data + more fitted, so higher expected future volatility.
Out of curiosity, what's the difference between a strategy that you test like this one & a strategy that you trade live? When you run it live, do you add stop losses & etc? Or just trade it as is
Never as is. At minimum, I add risk management measures (filters, different position sizing, etc), but usually not stop losses in mean reversion strats as they degrade the performance
Excellent work sir. Definitely cool to see the lack of overlap between the two oscillators.
Hi, great article as usual. would you mind sharing which library you use to generate the table comparing the two strategies (Summary of the backtest statistics) ? is it a public library and if so, which function do you use ? thank you very much for your help, I'm very new to this field and your articles are very insightful
Thanks! No, it's not public. It's a code base I've been developing since my master's degree ages ago. I'm thinking about sharing it and will probably do that soon
thank you for your reply. it would indeed be quite useful :) I'll keep an eye on your next posts and for now I'll keep reading all your articles ! cheers
Thanks, Chris! We can never know for sure whether the system permanently lost its edge or if a recent lack of performance is temporary. The way I personally do this is to keep tracking. For this system specifically, I believe it might be the first explanation (as lots of people know it). But we can never know for sure. Cheers!
I think that TOD from Connor’s could be a good alternative for this strategy as well as closing the position if todays close is higher than yesterdays high (Long only)
Appreciate all the great articles you are cranking out!!! It would be great to get your perspective on when a system has lost its edge. I see a lot of systems whose performance looks good over the last 20 years but mostly because the early years were very strong but in the last few years performance has lagged the indexes. Has the system lost its edge or is the recent subpar performance just temporary? Would be great to get your perspective on this. Thanks.
I’ve meant TPS