Topic: Robust Trading Strategies
We often have questions as to the viability of the strategies we are creating, whether or not we can trust them to make us a profit.
I have gathered a few quotes and will share them with you.
Before I do that...... I want to point out that the "Multi Markets" Tool on the Analysis Page of FSBPro is the 'whole truth' re robustness of a strategy.
Using "MultiMarkets" is fast and efficient for determining the robustness of your strategy.
There is not much need for any other tests as you can test various instruments and all time frames simultaneously using this tool. It takes a few seconds to compute. and the results are vividly displayed.
Of course, simple strategies using one or two logical slots are the ones that will make the grade. If you load up the logic slots with 5 or 10 indicators, chances are zilch that your strategy will survive.
Stable trading systems tend to be longer term in nature.
A robust system is one which works and is stable over many types of market conditions and over many timeframes. It works in German Bund futures and it works in Wheat. It works when tested over 1950-1960 or over 1990-2000. Robust systems tend to be designed around successful trading tactics (origin of our “Tactical” name), classical money management techniques, and universal principles of market behavior. These systems are not designed around specific types of markets or market action.
Dr David Druz
To design any mechanical strategy it is important to consider three things before anything else: 1) your objective for that system, 2) your market, 3) your timeframe. Once you have determined this, it is easy to find your essential methodology because there are only 4 ways to trade any market: 1) trend trading, 2) momentum trading, 3) reversion to the mean trading, 4) and fundamental trading. Once you have determined your objective, market, timeframe and method you are ready to attempt to put together your first strategy.
build a strategy over multiple markets, where each market is different. Some traders only trade multi-market strategies based on the belief that single-market strategies are too likely to be over-fit.
In summary a robust system should do the following
1. Trade a large portfolio of markets successfully
2. Trade that large portfolio successfully over a very long test period
3. Use the exact same rules for every market
4. Use the exact same input values for every market even if the rules are the same
5. Have the exact same logic and input values for initiating both buys and sells
6. Factors in realistic transaction costs
(slippage & commissions)
7. Be tested in a way where the markets have been normalized for risk
(not single contract)
8. Doesn't use Static preset exits for all markets IE $2000 stop or $5000 profit target for all markets, but rather dynamically computed ones.
Practically speaking, a robust trading strategy is one that produces consistently good results across a broad set of parameter (input) values applied to many different markets tested for many years.” Perry J. Kaufman