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SI155: How to Create the Perfect Backtest ft Richard Brennan
Top Traders Unplugged
English - August 28, 2021 22:00 - 1 hour - 81.6 MB - ★★★★★ - 509 ratingsInvesting Business News Business News finance business entrepreneurship entrepreneur marketing health leadership fitness interview Homepage Download Apple Podcasts Google Podcasts Overcast Castro Pocket Casts RSS feed
This week, Richard Brennan joins us to discuss whether there are any similarities between Trend Following and other investment approaches, the benefits of ‘forward-testing’ a system, the art of ‘hunting outliers’, what the optimum level of leverage could be, how much total portfolio ‘risk-to-stop’ to aim for, some thoughts on margin requirements, and which other strategy complements Trend Following the best. We also took a deep dive into backtesting, touching on topics such as: how much we can safely derive from a backtest, why a backtest with a smooth equity curve should raise alarm bells, a good checklist to use when creating a backtest, and whether some level of curve-fitting may actually be required for a good backtest.
In this episode, we discuss:
Which strategies would complement portfolio with 80% already allocated to Trend Following
Why 'forward-testing' a system can be quite important before going live
The art of finding and latching onto outlier performers
Leverage, margin, & total portfolio risk-to-stop
What information to look for in a backtest
How to avoid 'curve-fitting' (and could some curve-fitting be beneficial?)
Follow Niels on https://twitter.com/toptraderslive (Twitter), https://www.linkedin.com/in/nielskaastruplarsen (LinkedIn), https://www.youtube.com/user/toptraderslive (YouTube) or via the https://www.toptradersunplugged.com/ (TTU website).
Follow Rich on https://twitter.com/@RichB118 (Twitter).
IT’s TRUE 👀 – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written http://bit.ly/36bzny2%22%20%5Ct%20%22_blank (here).
And you can get a free copy of my latest book “The Many Flavors of Trend Following” http://www.toptradersunplugged.com/book%22%20%5Ct%20%22_blank (here).
Learn more about the Trend Barometer https://www.toptradersunplugged.com/resources/market-trends/%22%20%5Ct%20%22_blank (here).
Send your questions to [email protected]
And please share this episode with a like-minded friend and leave an honest rating & review on https://itunes.apple.com/us/podcast/top-traders-unplugged-niels/id888420325?mt=2%22%20%5Ct%20%22_blank (iTunes) so more people can discover the podcast.
Episode TimeStamps:
00:00 – Intro
03:25 – A massive thank you to listeners of the show for leaving your 5-star reviews on iTunes
03:47 – Macro recap from Niels
05:57 – Weekly review of performance
10:59 – Trend Followers as hunters of outliers
13:34 – Q1; Louis: Do you recommend starting a new model with lower leverage, so that it has time to adjust to the markets?
20:02 – Q2; Aaron: If you had to choose a different strategy to complement your main Trend Following strategy, which one would you choose, and why?
25:03 – Q3; Graham: How much margin do you use on different instruments? What total portfolio risk-to-stop do you recommend?
35:23 – ‘The good, the bad, and the ugly’ of backtesting
52:50 – How to make a backtest as objective and robust as possible
01:25:49 – Benchmark performance update
This week, Richard Brennan joins us to discuss whether there are any similarities between Trend Following and other investment approaches, the benefits of ‘forward-testing’ a system, the art of ‘hunting outliers’, what the optimum level of leverage could be, how much total portfolio ‘risk-to-stop’ to aim for, some thoughts on margin requirements, and which other strategy complements Trend Following the best. We also took a deep dive into backtesting, touching on topics such as: how much we can safely derive from a backtest, why a backtest with a smooth equity curve should raise alarm bells, a good checklist to use when creating a backtest, and whether some level of curve-fitting may actually be required for a good backtest.
In this episode, we discuss:
Which strategies would complement portfolio with 80% already allocated to Trend FollowingWhy 'forward-testing' a system can be quite important before going liveThe art of finding and latching onto outlier performersLeverage, margin, & total portfolio risk-to-stopWhat information to look for in a backtestHow to avoid 'curve-fitting' (and could some curve-fitting be beneficial?)Follow Niels on Twitter, LinkedIn, YouTube or via the TTU website.
Follow Rich on Twitter.
IT’s TRUE 👀 – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written here.
And you can get a free copy of my latest book “The Many Flavors of Trend Following” here.
Learn more about the Trend Barometer here.
Send your questions to [email protected]
And please share this episode with a like-minded friend and leave an honest rating & review on iTunes so more people can discover the podcast.
Episode TimeStamps:
00:00 – Intro
03:25 – A massive thank you to listeners of the show for leaving your 5-star reviews on iTunes
03:47 – Macro recap from Niels
05:57 – Weekly review of performance
10:59 – Trend Followers as hunters of outliers
13:34 – Q1; Louis: Do you recommend starting a new model with lower leverage, so that it has time to adjust to the markets?
20:02 – Q2; Aaron: If you had to choose a different strategy to complement your main Trend Following strategy, which one would you choose, and why?
25:03 – Q3; Graham: How much margin do you use on different instruments? What total portfolio risk-to-stop do you recommend?
35:23 – ‘The good, the bad, and the ugly’ of backtesting
52:50 – How to make a backtest as objective and robust as possible
01:25:49 – Benchmark performance update