• iTunes
  • Twitter
  • Facebook
  • Google+
  • Instagram
  • Youtube
  • Email
  • Home
  • Courses
  • eBooks
  • Library
  • The Empowered Trader Club
  • BST LIVE
  • About
Better System Trader

Better System Trader

Better System Trader is the podcast and blog dedicated to systematic traders, providing practical tips from trading experts around the world.

046 – Strategy Development with Perry Kaufman

http://traffic.libsyn.com/bettersystemtrader/BetterSystemTrader-Ep46-PerryKaufman.mp3
Play in New Window|Download

I’m sure we all want to create trading strategies that perform better and last for longer but there are a number of issues we need to look out for when developing robust trading strategies, some are well-known and some perhaps aren’t.

In this episode we’ll be talking with Perry Kaufman about strategy development and more specifically some of the issues that can catch us out when creating trading strategies. Perry raises some interesting points about optimization that may not be well known plus he shares loads of tips to creating more robust strategies.

Perry writes extensively on markets and strategies, having published fourteen books and has just released a new book on building algorithmic trading strategies, which we’ll be discussing in this episode.

He has worked and consulted to a number of successful CTA, investment and prop trading groups, creating systematic trading and hedging programs.

This is also his 2nd appearance on the podcast, appearing as a guest way back in Episode 10.

You can’t go into developing a system blind, you have to have some idea what you’re doing – Perry Kaufman

Click To Tweet

Sponsor

Topics discussed

  • The most robust type of systems
  • How your choice of optimization values could be misrepresenting your results and how to choose parameters that give a more accurate picture
  • The mistakes traders make when analyzing optimization runs and tips to doing it properly
  • How to really determine if a new trading rule is robust
  • Reducing risk by using multiple parameters
  • What the number of profitable runs in an optimization can tell you about the robustness of a strategy
  • Why diversifying across strategies instead of across markets could be a better approach
  • The challenges of building robust strategies using Genetic Algorithms and Neural Networks

Resources mentioned in this episode

  • To learn more about Perry and his work, checkout his website Kaufmansignals.com or Perrykaufman.com
  • He can also be contacted on perry@perrykaufman.com
  • Books mentioned in the show:
PerryKaufmanBook

Quotes

The fewer the rules, the simpler the method, the more likely it will keep working

Click To Tweet

Can you really develop a trading system with no knowledge of what you’re looking for?

Click To Tweet

Take time to establish a sound premise

Click To Tweet

Top tips

Perry shared a number of great tips, here are some of my favorites:

  • Use average of results in an optimization run
  • Remove strategy rules that don’t add much value
  • Look at the % of profitable runs in a distribution, Perry personally likes to see 66% or higher runs to be profitable
  • When considering the values in an optimization range, look for the values to be evenly spaced %-wise, for example, 10/20/40/80, not linear like 10/20/30/40/50 because linear can make the larger values look more stable purely because they’re closer together as a %
  • When adjusting strategy rules, don’t be fooled by a few results going up, you want something that is generalized and improves most cases
  • Neural networks/genetic algorithms – feed in fewer items to get a more robust answer

Transcript

Got A Question, Topic or Guest you want to see on the Podcast?

Do you have a specific question, topic or guest you’d like to see on a future podcast episode?

Click here and submit your suggestion for a chance to have it featured on an upcoming podcast episode.

Subscribe to Better System Trader and never miss another episode!

subscribe-with-itunes-button stitcher soundcloud android

Please support the podcast by giving an honest Rating/Review for the show on iTunes!

Episode Released:

3 April 2016

  • facebook
  • linkedin
  • twitter
  • google+
  • pinterest
  • stumbleupon
045 - Entry Techniques with Andr...
047 - Backtesting & Execution - ...

Related Posts

  • 036 – Automatic Strategy Creation – Michael Bryant
  • 026 – Systematic Trading Techniques – Robert Carver
  • 152 – “Backtesting trading strategies does not work” – John Ehlers
  • Too much of a good thing?
  • 060 – Strategy Optimization with Robert Pardo

Comments

  1. Django

    April 4, 2016 at 9:48 pm

    Great Interview as always , Isn’t it advisable to first wet one’s hand with discretionary trading to get a feel for momentum & mean reversion in a simulator or 1 mini lots in real time environments before heading onto rule based discretionary & finally into systematic trading ?

    • Perry Kaufman

      April 5, 2016 at 8:34 pm

      Hi Django,

      There is a benefit in actually trading, especially if it’s small volume, but discretionary trading does not (in my opinion) give you any leg up for systematic trading.

      I would suggest you consider a simple, long-term moving average system on a market that has a history of success (either long-term bonds or EURUSD). That way you can learn to follow the system, not always an easy task, and assess whether it is performing as expected. Systematic trading is a very different skill set and discipline than discretionary trading.

      And, of course, start as small as possible so you’re not worried by any losses.

      Perry.

  2. Chuah

    April 14, 2016 at 3:51 am

    What’s the difference between long term data points and short term data points(say comparing one sec to one day)? I still dont understand why long term strategy dont work on shorter timeframe

    • Perry Kaufman

      April 16, 2016 at 6:54 am

      That’s a good question and goes to the heart of why we use high-frequency (intraday) or low-frequency (daily or weekly) data for different systems. The closer you look at the data (e.g., higher frequency) the more “noise” you see, that is, more changes from up to down. If you put up 5 min data on a screen it will look very noisy. Changing that to 30 min data smooths out the appearance. Change to daily and weekly makes it even smoother.

      So the process of skipping data is that same as smoothing the data. If you try a 52-week moving average system on (of course) weekly data, then try a 252-day MA on daily data and a 2016-hour MA on hourly data (assuming 8 trading hours) you would expect to get the same results, but you don’t. The amount of noise in higher-frequency data will cause the trend to change much more often, so the results will deteriorate as you look shorter data intervals.

      Then there is the separate issue of whether there are trends in short calculation periods. We can explain the trends in longer time periods by the influence of the Central banks. They manage the interest rates, which then affect FX, and carrying charges of commodities, and finally the equity markets (borrowing, etc.). So longer-term trends have worked forever. But what about over 10 or 20 days? There is no “policy” that keeps repeating over that time frame. Short-term moves are driven by news, earnings, supply-demand disruptions, and other short-term events, many of which affect the market one day, then are discounted in a few days because the market has a bad memory. Those moves, looking back, seem more like noise.

      My own work concludes that a trend system is best applied to longer calculation periods, and mean-reversion to short periods (to take advantage of the noise). Normally, the equity index markets are the best candidates for noise, which the short-term rates are the best for trends. So it’s a philosophy that you might develop over time. That doesn’t mean that you shouldn’t try to find a better solution, or a way around the problem. It’s just nice to have a starting point.

      Best regards,
      Perry

Trackbacks

  1. Quantocracy's Daily Wrap for 04/04/2016 | Quantocracy says:
    April 5, 2016 at 3:19 pm

    […] Strategy Development with Perry Kaufman [Better System Trader] Im sure we all want to create trading strategies that perform better and last for longer but there are a number of issues we need to look out for when developing robust trading strategies, some are well-known and some perhaps arent. In this episode well be talking with Perry Kaufman about strategy development and more specifically some of the issues that can catch us out when creating […]

Next issue (Mar 2021):

Get the new "The Empowered Trader" monthly newsletter, direct to your door (yes it's printed!)

Click here for more info

Want to build robust trading strategies that actually work in live trading?

Click for more details

What pro traders are saying about BST

"If you have been looking for that little extra nugget to transform your trading, you will find it at Better System Trader."

Laurent Bernut alphasecurecapital.com

"The key to better system trading is information.  As a system trader himself, Andrew has unique capability of asking insightful questions that extract the skills of each guest."

John Ehlers www.mesasoftware.com

"I really enjoy the wide variety of topics and perspectives shared in the podcasts and with the interviews done by someone with real life trading experience"

Tim Rea thetradingmasterclass.com

"Professional, to the point and relevant content. Better System Trader should be followed by anyone with an interest in our field."

Andreas Clenow followingthetrend.com

"The Better System Trader podcasts have become an invaluable resource... There's no other podcast around that covers the subject in so much breadth and depth."

Alan Clement helixtrader.com

"Andrew has interviewed some great people and I have picked up some useful new insights. His integrity, trading knowledge, light-hearted attitude, curiosity and enthusiasm shine through and enhance each of his podcasts. Given the quality of the information and the price (free!) any serious trader would have to be a fool to not take advantage. Keep it up my friend."

Bob Pardo pardocapital.com

"What really makes the BST podcast stand out is that Andrew is also an experienced trader and can therefore provide incomparable quality and depth in any interview. Thank you for endless inspiration."

Tomas Nesnidal systemsontheroad.com

"The right questions to the right people at the right time."

Nick Radge thechartist.com.au

"This podcast provides unique information, from real traders, interviewed by an experienced trader."

Kevin Davey kjtradingsystems.com

"Knowledgeable and credible guests talk about useful topics in an interesting and engaging discussion. What's not to like?"

Robert Carver systematicmoney.org

"If I had to listen to one trading podcast only, it would be Better System Trader. I am always learning new things and getting research ideas from Andrew’s guests."

Cesar Alvarez alvarezquanttrading.com

"Andrew seems to have a knack for getting the world's most famous traders to share valuable insights about how they trade for the benefit of the trading community."

Andrew Gibbs halifaxonline.co.nz

"Better System Trader is an invaluable resource that I've gleaned tremendous amounts of information from over the years. I wouldn't be the trader I am today without having found this resource. Please keep up the great work."

David Bergstrom buildalpha.com

"Listening to BST is a requirement for everyone on our team."

Bert Mouler profluentcapital.com

"Andrew loves traders and draws the most informative and engaging responses out of them."

Art Collins artcollinstrading.com

"Andrew is a master at asking difficult and relevant questions."

Perry Kaufman perrykaufman.com

"BetterSystemTrader is an amazing resource of valuable information, Andrew is always able to ask the right question at the right time to deliver the best content possible, a must listen for anybody interested in trading!"

Andrea Unger skilledacademy.com

Trading stocks, options, futures and forex involves significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results.

© 2015 Better System Trader · Disclaimer & Terms · Privacy Policy · Sponsor