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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.

079 – Strategy Validation with Dave Bergstrom

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With the toolsets we have available to us today it’s really quite easy to create a trading strategy by just mining market data.

As we’ve just heard in that opening bit of audio and also from previous podcast guests too, if you try enough combinations you can find something that appears to work purely by chance or by luck.

The challenge however is trying to identify something that could be sustainable.

Something that may persist long enough in the future for us to take advantage of, and hopefully make some money from.

Our guest for this episode, Dave Bergstrom from BuildAlpha, has spent years researching, building, testing, and implementing market making and trading strategies for a high frequency trading firm, CTAs, money managers, individual clients, and even aspiring retail traders.

In this episode Dave is going to share some of his insights into strategy development and validation, including:

  • How adjusting the ratio of in-sample/out-of-sample data can lead to creating different types of strategies
  • Variance testing – what is it and how can it be used in the strategy creation process
  • How E-ratios can be used to determine how an edge decays over time & weed out potentially poor strategies with good backtest results
  • Why volume and volatility are important factors to consider when building trading strategies
  • Loads of other ideas to test and validate the robustness of trading strategies.

Even if it has a great back test but a bad E-ratio, I’ll throw it out right away

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Resources mentioned in this episode

  • You can get more from Dave on his website buildalpha.com or by following him on Twitter @Dburgh
  • For more information on e-ratio and how to use it, check out this exclusive article Dave prepared for BST listeners
  • BuildAlpha – check out the demo here
  • Books mentioned in the show:

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Changing a bunch of parameter lengths increases the odds of curve-fitting

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I’ll add varying amounts of noise to historical data, then go back and re-trade the strategy

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Try enough combinations, you’ll find something just by pure luck

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Transcript

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Episode Released:

5 March 2017

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078 - Deadly snake face-off
080 - "My Best Losing Year Ever"

Related Posts

  • 099 – Where to focus for top trading performance
  • 005 – Building Trading Strategies – Kevin Davey
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  • 029 – Monitoring System Health & Rotational Trading – Alan Clement
  • 013 – Trend Following (doesn’t work) – Andreas Clenow

Trackbacks

  1. Quantocracy's Daily Wrap for 03/05/2017 | Quantocracy says:
    March 6, 2017 at 4:15 pm

    […] Strategy Validation with Dave Bergstrom (@DBurgh) [Better System Trader] […]

  2. 9th March 2017 – Nikhil Dogra says:
    March 9, 2017 at 8:23 pm

    […] 079 – Strategy Validation with Dave Bergstrom Podcast […]

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