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portfolio diversification strategies

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.

MetaTrader Expert Advisors: The Set & Forget Myth [EAS-II]

Is Portfolio Diversification alone, sufficient for managing risk?

Portfolio Diversification is a critical consideration when managing the risk of a portfolio of trading strategies.

If you’ve watched the previous introduction to trading diversification video you’ll know how important it is.

However, it isn’t the only consideration 💡

We’re going to discuss some things to be aware of when looking into risk management techniques.

Here are two considerations where diversification might not work as well as one would hope:

1) Black Swans

It’s okay, you don’t need protection from Natalie Portman. A black swan is an “unpredictable event that is beyond what is normally expected of a situation and has potentially severe consequences”.

Can you think of an example of a black swan?

Tag us on Twitter (@Darwinexchange) with your thoughts, and if you’ve been the victim of a black swan event?

During these events, previously uncorrelated assets tend to become correlated due to unforeseen circumstances. This can reduce the effectiveness of this method of risk management.

2) Market Randomness

Regardless of how correlated two assets are. There will be times when both move in the same direction.

This temporary correlation doesn’t mean the same forces are driving them.

Due to the sheer quantity of assets and the nature of the financial markets, there will be a level of randomness to the price action. Thus reducing the effectiveness of portfolio diversification.

Ultimately, knowledge is power. By understanding areas where diversification may not be as effective, we can take steps to mitigate these risks. Reducing the risk on your portfolio is a multi-stage process.

Portfolio diversification is important, but it is only one aspect.

Hopefully, by the end of this series, you’ll feel comfortable implementing these valuable insights into your own portfolio.

Pop Quiz

If we diversify our portfolio across 4 uncorrelated assets, using the figures Martyn gives in the video, fill in the blank:

Diversification can only contribute to reducing the risk a max of __________% of the time.

Answers in the comments below!

The issues discussed here are just some of many that need to be considered when measuring risk.

Video Series: Why & How We Measure Risk differently at Darwinex

Watch the full playlist on YouTube here

Here’s video #1 where we describe the differences between Money Management and Risk.

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.