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<FONT face=Arial color=#0000ff
size=2>Another good question and thanks for the opportunity of addressing
it.
<FONT face=Arial color=#0000ff
size=2>
I
think you may have taken my comments on "presentation of backtesting results to
clients" in the wrong way.
<FONT face=Arial color=#0000ff
size=2>
Most
investors in any managed funds (me included) are mostly interested in seeing
an actual, real-time trading record. The time comes, however,
when I am either launching a fund that will trade in a new way with a new
(unproven) track record or I'm about to add a new trading system to an existing
fund or I'm "fixing" a system that hasn't been performing very
well.
<FONT face=Arial color=#0000ff
size=2>
In all
of these cases, there is no real track record. I still have my
40-year personal track record and 15-year managed funds track record intact and
demonstrable. But, if I'm about to try something different, every
investor in this new "thingie" wants to see something. All I can
offer is a backtested performance. Serious investors would laugh at
a three-month backtest in this case. They wouldn't even be
interested in a five-year backtest, unless it is trading something that didn't
exist previously.
<FONT face=Arial color=#0000ff
size=2>
To
satisfy this need for information, I try to show potential investors (including
me) at least a 10-year and preferable a 15 to 20-year backtest equity
graph. Then, the questions start. At least the questions
should start. I feel that I have all the right answers to questions
like these:
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>1. Have you accounted for survivorship bias?
<FONT face=Arial color=#0000ff
size=2>2. Are you doing any filtering?
<FONT face=Arial color=#0000ff
size=2>3. If you are filtering, are you using prices and volume that
actually occurred on the day?
<FONT face=Arial color=#0000ff
size=2>4. Are you doing a reasonableness check that you could have
actually traded that much on the day?
<FONT face=Arial color=#0000ff
size=2>
etc.
etc.
<FONT face=Arial color=#0000ff
size=2>
Each
time I mentioned what potential investors might do, I included myself in
parenthesis. That's because I am an investor in anything that I
manage. I wouldn't have it any other way. The last (if not
first) question a potential investor should ask me is: Are you an
investor in this new product?
<FONT face=Arial color=#0000ff
size=2>
I hope
this gives you a better idea about why backtesting is important to
me. Once a fund and/or new product is off and trading, the
only thing that matters is the real performance. Once a system has started
trading, I don't touch it without doing more backtesting and submitting the
research results to every investor who must be happy for me to make the
switch.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: Phsst
[mailto:phsst@xxxxxxxxx]Sent: Saturday, June 21, 2003 12:36
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker] Re:
Historical volume filteringChuck,One final
point I forgot to ask about.Because of your hedge fund management
stature, you seem to slant yourbacktesting toward generating results that
can be presented topotential investment clients as opposed to focusing
upon 'real tradingresult expectations' that the rest of us might be
concerned with.The question is this... do you have seperate
backtesting systems forpresenting to clients versus actually
trading?Phsst--- In amibroker@xxxxxxxxxxxxxxx, "Phsst"
<phsst@xxxx> wrote:> Chuck,> > I've been keeping
'grandkids on steroids' today, so I am a little> punch-drunk. I've read
all the posts on this thread and have a couple> of comments.>
> Your database goes back to '85. As I relate to my own situation,
my> average Positionsize in '85 was only a fraction of my
Positionsize> today. I've been backtesting since the late 80's, and
have used VOLUME> for two (2) purposes... (1) to gauge price action,
and (2) to gauge> liquidity as it related to MY POSITION SIZE. On the
second count, as> my personal positionsize increased, so did the
average volume in the> markets. > > As mentioned in
subsequent posts on this subject, I've filtered both> my backtests and
my actual trades based upon a volume multiple of my> Positionsize as
opposed to x# of shares traded per day, irrespective> of price.>
> You and I have both stated that we backtest based upon 'fixed
position> size'. And yet other people are not able to relate to that.
They seem> to think that everyone 'compounds' their trades on a daily
basis> depending upon their account size growth or demise as a direct
result> of trading results. The truth (for me) is a compromise...
As my> account size grows(whether thru trade profits or savings) I
gradually> increase my Positionsize, but it is not directly
proportional to> trading success.> > So in my mind,
increases in actual market trading volume are just> about proportional
to increases in my own account size, and are> therefore a
'non-issue'.> > Another issue for me is your multiple posts
relating to prefering> non-split adjusted data.> > Every
time you've mentioned your preference for 'non-split adjusted> data',
I've chosen to ignore the subject rather than to open it up as> an
issue.> > But it is time to ask the crucial question... if you
really use> non-split adjusted data, how do you account for stock
splits in your> backtest results where a 2 for 1, or 3 dor 2, or 4 for
5 stock split> has occurred. For example if your system generates a
trade when the> stock price is at 50, and a 2 for 1 split occurs
dropping the price to> 25 (reducing your position by one-half), how in
the heck do you> account for the price reduction which did not REALLY
account for a> loss in your 'real life account' but which devasted your
backtestresults?> > Just curious.> >
Phsst> > > > > > groups.com, "Chuck
Rademacher" <chuck_rademacher@x> wrote:> > I was about to send
this email to "b", but I would welcomecomments from> > anyone
else interested in such historical work.> > > > At the
risk of having some of you ask why it matters, my backtesting> >
generally goes back to 1985. Just yesterday, I posted a
message> to this> > group saying that I always use one set of
parameters across all> stocks and> > across all
timeframes. One of the downsides of this approach>
(perhaps) is> > that volume has changed over time. I
suppose that one couldargue that> > volatility changes over time
as well. Volatility, however, goes> through> >
cycles and volume just keeps growing.> > > > The question
that I have involves volume filtering. To me, it is>
essential> > that volume filters be applied to actual volume and not
backadjusted> volume.> > My concern, however, is that if I
apply a filter requiring anaverage of> > 300,000 shares, I don't
get very many hits back in the late 80's and> early> >
90's.> > > > I have a solution in mind and would
appreciate some input or> dialogue on the> >
subject. It seems to me that volume filtering should be
basedon some> > percentage of the total volume of all NYSE
stocks (for instance). I> > haven't done my homework
yet, but let's say that the average volume> today is> > ten
times more than it was in 1985. If I decide to filter today
at> 300,000> > shares, wouldn't it make sense to filter based
on 30,000 shares in> 1985. I> > can probably
answer that question myself by saying that I don't> think
30,000> > would be an adequate filter in 1985. But I
could scale it from> 100,000 to> > 300,000 progressively
between 1985 and 2003 based on mathematical> equation.> >
> > You may ask why backtesting to 1985 (or any other date) is
important.> > There are dozens of reasons, but the most important
reason to meis that> > prospective investors in any funds that I
manage want to see how a> proposed> > system would have
performed over a statistically meaningful period> of time.> >
You can argue about the relevance of such information, but THEY> EXPECT
TO> > SEE IT. For the record, I also think that it is
very important.> > > > I welcome comments from anyone with
an interest or knowledge in this> area.Send
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