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"Where should I go next with this trading strategy?"

By Dave Mabe

Here's a question about a futures strategy from Arjun (name used with permission, lightly edited for clarity).

Arjun:

I am trying to trade futures now (/NQ and /ES mainly). I bought Amibroker 7, and I am importing data via the IB connection. I have 6 months of 1 min data in my backtesting database. (I will subscribe to IQ to get at least 10 years of minute data.)

I have two strategies I'm trying to backtest:

  • one is on 500 tick level

  • another uses 3-minute bar data

I am getting some results like 20-30%, with 40/60 win rate and 1.45 profit factor with NQ, ES, and CL, but the drawdowns are not ideal (max 10% drawdown).

I have been simtesting the strategy. I am not sure where to go from here.

  • Is more data a requirement to say these numbers are acceptable?

  • Should I do more strategy parameters optimization?

  • Should I add more attributes to better the strategy?

Dave:

Great questions and nice work getting to this point with your strategies.

The real question here is what would give you more confidence that the strategy will continue to work into the future?

If you had more confidence, then you could create a plan to trade it with increasing size over time.

He doesn't mention how many trades there are in each system, but I can infer that there are not several thousand simply because of the instruments traded and the time period.

Because you're applying this to just a few instruments, I would focus on getting more data in your backtest.

The nice thing about that is you've already done most of the work. Now it's just a matter of getting more data into a backtesting database and running the same code on that instead.

Having more data for your backtest will allow:

  • More confidence in the strategy itself since you'll have a much broader perspective

  • Makes more columns/parameters feasible

  • Reduces the pressure to have to re-optimize the strategy frequently

That last one is important - your strategy will be a lot more robust.

As I often tell futures traders, if you've made it this far with a strategy trading just a single instrument, you have the potential to create easier and more plentiful trading edges by applying your ideas to US equities.

That is, you're doing it the hard way, and the fact that you've made it this far is a great sign!

Thanks for sharing with the group, Arjun.

-Dave

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