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Measure Correlation Portfolio Diversification Trading Strategy

Using Performance Metrics in the Optimisation Process

Performance Metrics are a great way of comparing different strategies. We wrote about some of these performance metrics in a previous post.

But is it possible to use performance metrics in the optimisation phase of strategy development? A performance metric is just a way of measuring the success of something. So, it makes sense that you can use performance metrics to measure the performance of a strategy and the components of the strategy.

Experiment

It’s healthy for Traders to explore new ideas and ways of implementing those ideas. Trading Strategy Development can be a creative process. Just because an idea is unique doesn’t mean it will be a success, but you only learn what works by first learning what doesn’t work.

It is also a good idea not to limit yourself to one idea or process. You should perform a range of comparisons and see which one looks the most robust.

Question why you think it works and the others don’t. By constantly trying new things and questioning the results, you will improve your understanding.

This process is helpful because the more you understand, the better equipped you’ll be to adapt to an ever-changing market.

Martyn has provided an example of using Van Tharp’s SQN in the optimisation process instead of comparing trading strategies. Similarly, Darwinex supplies various proprietary metrics that can help a trader analyse and optimise their trading strategy.

Do you use Performance Metrics in the Optimisation Process? Let us know how you get creative on Twitter @Darwinexchange.

Brought to you by Darwinex: UK FCA Regulated Broker, Asset Manager & Trader Exchange where Traders can legally attract Investor Capital and charge Performance Fees.

Risk disclosure:
https://www.darwinex.com/legal/risk-disclaimer


Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only and are not to be construed as financial and/or investment advice.

Loss Aversion

Free Backtesting and Optimization Education and Tutorials Video Series

Does Free Backtesting Education really exist? Is it any good? Do I need to spend hours sifting through uninsightful videos to find what to focus on?

In short, no. Today’s video gets straight to the point and highlights the most insightful content in the Backtesting and optimization playlist.

Like the previous video, which focused on algo trading for a living, today’s focus is on

Backtesting and optimization.

Episodes 1 & 2. This mini-series made up of 8 videos shines a light on how to extract the best parameters from your backtest to implement in your live trading. This is no easy task, hence the length and detail of information in this mini-series.

Episodes 3 – 6 consist of 11 videos and covers the critical topic of over-fitting. When looking at your backtest results, it’s important not to cherry-pick the one with the greatest return. Over-fitting your backtest to historical data is dangerous, as this part of the series covers this in great detail.

Episode 7 delves into the world of Walk Forward Optimisation. Walk Forward Optimization is a way of optimizing parameter selection without overfitting. This is thoroughly recommended viewing.

Episodes 8 & 9 expand on lessons learnt in episode 7 and build on this by getting to the heart of the optimization process. It does this by looking at, amongst other things, compelling optimization profiles. This is important because it highlights how to deal with unpredictable results and outliers.

Episode 10 covers performance metrics and how to use these metrics to increase your backtests robustness further and, as such, improve your live results.

Then, episode 11 analyses price data models used in backtesting processes. This episode helps select the most appropriate settings to use in Backtesting. These should closely resemble that of live trading.

If you were to use wildly different price data, your backtest would not be a fair representation of what you can expect to see in live trading.

The remaining 13 videos help tie all the above together. By the end of this video series, you will have a deep and powerful insight into some best practice techniques for handling price data, selecting parameters and optimizing your strategy ready for live trading.

Monitoring your live strategy

Additionally, you can monitor the performance of your trading strategy by using some of the Darwinex Investible attributes and performance metrics.

If you look at the Open Strategy (Os) & close Strategy (Cs) Investible attributes, these rate the performance of your strategies opening/closing trades compared to if it opened/closed earlier or later.

You could use this information to see if the market has changed and if the edge you researched previously still holds up, or if it has started to decay.

The Darwinex platform has a wealth of tools to help the trader and investor alike. Feel free to have a play, and if you need further clarification on anything on the Darwinex platform, don’t hesitate to get in touch.

Brought to you by Darwinex: UK FCA Regulated Broker, Asset Manager & Trader Exchange where Traders can legally attract Investor Capital and charge Performance Fees.

Risk disclosure:

https://www.darwinex.com/legal/risk-disclaimer

Content Disclaimer: The contents of this video (and all other videos by the presenter) are for educational purposes only, and are not to be construed as financial and/or investment advice.