(2) Why do you trade complicated trading systems?
I'm the first to put up my hand when complex systems are mentioned
Simplicity sometimes doesn't equate to safety. When developing a trading strategy I do have my pet indicators, filters, and parameter that have been tested over many years but there are a few general hints I can pass on. Overall, I think that a balance between complexity and simplicity is key and that a deep understanding of the underlying principles driving the system is crucial for successful trading.
# Refining Your Trading Strategy
As traders progress beyond the beginner stage, focusing on refining their trading strategy becomes increasingly important. With experience comes a better understanding of what works and what doesn't, allowing traders to extract more value from their strategies.
# Identify Redundancies and Inefficiencies
Review your existing strategy and carefully analyse each section of code. Look for, (a) Duplicate or redundant calculations (b) Unused or unreferenced variables (c) Inefficient or convoluted logic. Eliminating redundancies can speed up your backtesting and improve the clarity of the strategy.
# Organize Your Code into Logical Sections
Most beginners tend to code in one lengthy block. Organizing your code into logical sections, each with a meaningful name to make it much easier to read, modify and optimize parts of the strategy in isolation. Well-organized sections also make it easier to reuse parts of your code in new strategies.
# Improve Your Variable Names
Meaningful variable names are important for readability and maintenance. Rename variables to properly reflect their purpose, using names that are, concise, consistent, and descriptive.
# Add Comments Where Helpful
Comments above important sections of code can help explain the purpose and logic. However, avoid trivial one-line comments. Use comments judiciously to add the most value.
# Combine Multiple Signals into a Composite
Instead of having separate buy signals from different indicators, combine them into a single composite buy signal. This reduces the number of false signals and strengthens your overall entry conditions.
# Introduce Filters to Reduce Noise
Adding price, volume, and volatility filters as parameters can help filter out false signals and reduce noise, particularly for trend trading strategies. Using the "Param Feature" in Amibroker allows testing various filter combinations to find an optimal balance of signals and noise without code alteration. Making an "apx file" for each improvement maintains a reference rather than keeping all this information on paper or in your head. If you don't everything tends to muddle over time.
# Backtest Individual Sections in Isolation
By backtesting each section of your strategy separately, you can identify areas for improvement and optimize individual parts before combining them again.
# Look for Edge Case Issues
Test your strategy with extreme data points and unusual market conditions to identify any edge case errors. Handling these edge cases helps to improve reliability.
# Reward Yourself for Improvements
To stay motivated, set goals for yourself and reward your progress. Even marginal improvements, when compounded over time, can make a big difference to your results.
Ultimately, by thinking critically about your existing trading strategy and applying some of these suggestions, you can fine-tune your code into a more robust and effective system, one that generates better risk-adjusted returns over time.
Skate.