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Hi QC Community,
When is a strategy "good enough" to go live?
I understand that the answer will differ depending on the person, but that is also part of why I'm asking (i.e., so that I can learn from the ones who are better at this than me).
For example, would you trade the below strategy on a live account? The strategy is a simple trend following system (cutting losses and letting profits run). The equity result ($10,000 → $138,641.62) looks promising but I fear that I'm fooling myself somehow. I'm aware of the low win rate (30%), but I do think that I would be able to actually run this strategy live. The portfolio turnover (28.75%) is also a bit low, but I'm thinking that I should be able to combine this strategy with a mean reversion strategy as the next step.
All constructive feedback is appreciated.
Thanks.
Mia Alissi
Deciding when a strategy is "good enough" to go live is indeed a subjective decision and depends on various factors. Here are some points to consider based on the information extracted from the QuantConnect forum discussions:
Backtesting: Ensure that your strategy has good backtesting results. This is the first step to validate your strategy. However, remember that good backtesting results do not guarantee similar live trading results.
Overfitting: Be cautious about overfitting. If your strategy has too many parameters and a wide range of them, it might create a false overperformance that doesn't measure up when extended to out-of-sample data.
Live Paper Trading: Before deploying your algorithm with real money, it's recommended to do live paper trading. This will help you understand how your algorithm performs in real-time without risking actual capital.
Monitoring: Once you go live, closely monitor your algorithm, particularly at the outset, to see if it's behaving as expected.
Risk Management: Consider the risk management aspect of your strategy. For instance, look at the drawdown and think about how you can apply better protective measures.
Performance Metrics: Look at performance metrics like Sharpe ratio, beta, win rate, average win per trade, and average loss per trade. In your case, a 30% win rate might be acceptable if your average win per trade is significantly higher than your average loss per trade.
Strategy Understanding: Make sure you understand how your strategy works. If you aren't completely sure how everything works, it might be risky to go live.
Strategy Robustness: Validate the robustness of your strategy. This can be done by running the optimization on a key parameter for sensitivity testing, for instance.
Remember, these are just guidelines and the final decision depends on your risk tolerance, investment goals, and confidence in your strategy.
Sources:
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
AgedVagabond
It makes sense, it looks like a lot of buy an hold trades, because it looks to very closely follow SPY or the other big indices. I am not experienced enough to give any answers but there is no harm in advancing to paper trading with a broker and seeing what happens, that is my plan with what I have been working on.
from past experiences I can say that if you sat adjusting parameters of indicators or price action, targets and stops etc until it got a good backtest, then its probably curve fitted, if you had a concept and ran a few tests with minor tweaks, you're probably looking good, assuming it isnt just doubling down without closing out winners (because in real life you have limited margin). if you're using c# you could use the lightweight charts thing i just posted to export your trades to charts and have a look, but you would need your own local data and the lean engine running local
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Henrik Strand
No martingale stuff at all. Max 1 active order.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Jared Broad
I would focus the backtest on the last 12 months; IMHO, there has been a regime change with the interest rates rising. The period of 2008-2022 isn't relevant to today's markets.
It's easy to test with a small amount of capital to get the hang of the system and see if you can follow it out of sample. It's important to know if you can also stomach a 44% drawdown. PSR of 1% means it's likely overfit.
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
Henrik Strand
Thanks Jared Broad
That backtest isn't as fun as the previous one. =)
Back to the drawing board I guess...
The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by QuantConnect. In addition, the material offers no opinion with respect to the suitability of any security or specific investment. QuantConnect makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances. All investments involve risk, including loss of principal. You should consult with an investment professional before making any investment decisions.
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