Yesterday, I went over the details of how you can use columns in your backtest to improve your strategy and showed a specific example from a strategy I’ve traded for years.
Today, I wanted to share some thoughts about my approach to optimizing my strategies.
Remember, you shouldn’t be shooting for your final version of the strategy with your first backtest.
Think of the first backtest as setting the stage for designing your final version.
As you begin optimizing your strategy from that first backtest, you’ll find large sets of unprofitable trades to eliminate using rules.
As you get closer to a version you’ll consider trading live, you should be looking for smaller and smaller subsets of poor trades to remove.
As a general rule of thumb, as the strategy gets more mature and is working in live trading, you’ll want to be stingier about adding rules since there’s a tradeoff with removing total profit.
Here’s the thing.
You could keep optimizing down to a single trade in your backtest that you’re really confident (but not positive) would be profitable.
But that’s not very valuable – imagine waiting a year for a single trade to come along – you better be ready!
So how do you know when a strategy is “ready”?
That will be the focus of this series next week.
-Dave
P.S. Matt H. signed up for the Strategy Cruncher and sent this feedback to share:
“I ran the Strategy Cruncher on my strategy and it suggested a few filters. I plugged them in, ran the back test and WOW! A 20% improvement in total profit, and with another, a significant reduction in drawdown. I recommend this for anyone truly serious about optimizing their strategy.”
The early bird discount code to get 50% off the Strategy Cruncher is EARLYCRUNCHER and expires 6/15, so act quickly before it’s too late.
