A few of you responded to my last post about some of my favorite columns for creating strategies with the correct answer.
The best columns are normalized. This is not the first time you’ve heard me use this term.
Why is it so important?
It’s only important if you want to create a strategy that’s actually profitable. 🙂
Normalized columns allow you to maximize the number of profitable trades in your trading system.
Here’s a real life example from a long strategy I’ve traded for almost 20 years now.
I followed the exact process I’ve outlined in recent posts:
- The first backtest has very little filtering
- I add my column library to the backtest
When I put the backtest through the Strategy Cruncher, here’s what it identies as highly predictive:
From all the dozens of columns in my backtest, it tells me that Yesterday’s Change from the Open % needs to be small:
(I’ve obscured the exact value it tells me is optimal to use.)
When I apply this one simple rule to the strategy, it reduces the number of trades, but the trades that remain are 20X more profitable.
Compare that to another column that a lot of traders try to make a rule from: Price.
When I run the Strategy Cruncher and tell it to look at Price, it gives me this:
It’s identified the optimal rule for Price, but there’s hardly any improvement in the strategy by applying it.
Notice where the lines end up. The average profit per trade are essentially the same.
I could apply the rule based on Price and technically I’d improve the strategy slightly, but I would be removing a LOT of profit from the system for very little gain.
This is why it’s important to add normalized columns to your backtest.
It gives you a path to quickly increase the profitability of your strategy while removing as few trades as possible.
-Dave
P.S. Interested in reducing your drawdowns? Here’s how Isaac used the Strategy Cruncher to do exactly that:
“I started using Strategy Cruncher and it gave me some suggestions for improving my system that I hadn’t considered. It reduced my trade count without sacrificing system profitability and actually reduced drawdowns. The lower trade count means less fees and less required buying power as well. I ran the optimized version in a live account, side by side with my current strategy, and the improvements are very real.”
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.
