Line Your Own Pockets

In this week's episode of Line Your Own Pockets, we continue our discussion of metrics for optimizing strategies.

What you choose to optimize when you're creating a strategy can make a big difference in your results.

The obvious choice is Total Profit, but the optimal path that comes with that could be jagged and painful.

Here are some of the topics we touched on:

• Optimize for your confidence, not just maximum profit
• Try creating two different versions of a strategy, each optimized toward different outcomes
• The path a trade takes matters - not just its final P&L
• Smooth equity curves are easier to scale - here's why
• Don't solve hypothetical problems too early

And much more...

SHOW NOTES:
Previous episode: https://lineyourownpockets.com/episodes/what-metrics-should-you-optimize-for
Efficiency function Dave mentions:

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

In this week's episode of Line Your Own Pockets, we discuss which metrics to use to evaluate trading strategies.

There's no shortage of these - just look at the default report in an Amibroker backtest - there are dozens!

Topics covered:

• Why it makes no sense to optimize on just one metric
• If you had to choose one "metric," make it the equity curve.
• There is no perfect set of metrics, just like there's no perfect trading strategy
• Which metric gets our vote as the most overrated (hint: it's not win rate)
• Optimize for an easier trading life rather than maximum return

And much more...

There's something for everyone in this one.

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

In this week's episode of Line Your Own Pockets, we answer a multi-part question from long-time list member Chip D.S. (name used with permission).

The first part of his excellent question:

We discuss:

• Why optimizing separately is a good default, but not a set-in-stone rule
• Look for commonalities when optimizing the long versus the short trade sets
• How "directional" columns are useful when combining long and short trade sets
• When going live with an Amibroker strategy, how to strip down the code to make it run fast

And much more...

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

We interview Steve Bravo from Massive (formerly known as Polygon.io).

I passed along several questions from MabeKit Mastermind members, who brought up some good ones.

We discuss:

• Why there are so many data providers and what makes Massive unique
• Why the name change? (They changed from Polygon to Massive several months ago)
• How AI has changed the data business - dramatically
• Discrepancies between data vendors and what causes them
• What's coming next from Massive? (L2, fundamentals, etc)

And much more...

Thanks to Steve for joining us!

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

In this week's episode of Line Your Own Pockets, we discuss a question I received from a reader named Sridhar.

He recently went live with 8 automated trading strategies - and none of them are performing well.

In his words (used with permission, excerpted for clarity):

Sridhar:

Hi Dave, I'm struggling at the moment, and you're the person whose judgement I trust most on this.

In less than 2 months, I found up to 8 intraday strategies, each with >1.5 PF, each researched to a locked backtest.

The results don't match the effort. I'm down about $16.8k net of commissions since mid-July, and I've been red on 22 of 35 trading days.

I hope things can turn around, but honestly, I'm losing spirit a bit. The process and the engineering are strong, and I'm still losing money. I'd really value your perspective.

We discuss this in detail in this episode, with concrete steps to improve and identify the mistakes.

Topics include:

• Start with 1-2 strategies rather than 8
• Trade tiny at first - you can learn a lot with minuscule size, so you can avoid "paying tuition" to the market
• How to plan for drawdowns before they happen
• Don't "build the pedestal" - use established backtesting software and focus on the important thing: the strategies
• Only scale after the market has given you concrete feedback that your process is sound

And much more...

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

In this week's episode of Line Your Own Pockets, Michael and I have a heated discussion on swing trading versus day trading.

It starts innocently enough with a question about how to backtest a swing trading strategy with a "trail forever" component.

But then it quickly turns into a swing trading versus day trading cage match.

We do finally end up agreeing on the fundamental approach to backtesting a swing trading strategy - barely.

Topics discussed:

• The differences between backtesting a day trading and a swing trading strategy
• Open-ended trailing exits make backtesting more complicated, and how to handle this in your test
• How outliers can affect your backtest and how the trailing-exit component can magnify them
• Overlapping positions suck up buying power, creating an overnight choke-point

And much more...

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

In this week's episode of Line Your Own Pockets, we explain how to use candle patterns in your trading strategy.

Topics covered:

• Candle patterns aren't magical signals, but that doesn't mean they have no value
• Instead of "when does pattern A work?", ask yourself "when does pattern A help my strategy?"
• Don't get stuck on the exact definition of a pattern (e.g., a hammer) - it's arbitrary
• The MabeKit Dojiness column as a good example of a continuous versus binary variable in a backtest

And much more...

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!

In this week's episode of Line Your Own Pockets, we discuss a question submitted by long-time list member, Matt H., about signal strength.

How strong should your signal be when creating a trading strategy?

It depends...

Topics include:

• Stronger signals make strategy development easier
• A weaker signal can be viable, but in this case the filters do more of the work
• The more filters contribute towards the edge, the more curve-fitting risk
• My favorite strategies are those where the signal is "hiding in plain sight"

And much more...

No matter where you are in your strategy creation process, you'll get something out of this episode.

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Before you go!

The next time you find yourself in a drawdown, I want you to stop what you're doing and head on over to betterbacktesting.com to sign up for my free backtesting email course.

I hope to see you there!