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Hello,
I wanted to share my experience developing systems and there is
something when implementing real-life that I have noticed that you may
want to comment/help me on. This is causing me a headache since it is
a kind of paradox I need to understand. Please tell my if I am missing
something here:
When you develop a system you have 2 options.
1. Use all available information for today and trade tomorrow
2. Use all available information for today and trade today
In 1. you will be able to know today tommorrows picks (this is a great
advantage if you want to publish your signals) but tommorrow may be a
day that is not good for your system (i.e. you have a signal to go
long tommorrow but tommorrow the market goes down 5%). Should you take
the signal?. Yes you should, otherwise you are not following your
system. Although this is an extreme example I belive you understand
what I mean.
In 2 you are using today's information to trade today. This is good
because you only enter if at the moment of the trade all conditions
are good. My experience is that i.e. adding a PDI(14) > MDI(14) as a
filter to my system (no tradedelays) results improve a lot in
backtesting but this is not 100% real since the cross PDI-MDI
sometimes activate my signal instead of the intended conditions. When
I trade with today's information I find a lot of false signals. There
is a long signal, I buy, conditions change (i.e. PDI moves below MDI)
and the trading signal dissapears from the scan and from the chart.
Despite this I get much better results in backtesting even with big
slippage compare to 1. In real life trading I am using 2 and I am up
+45% for the year despite of the problems mentioned.
I understand that only in 1 the backtesting will provide me some
insight into the future, but 2 is too appealing to ignore it and I
have not yet seen very good systems in 1 compared to 2. I belive there
is no way to backtest 2 to obtain real (achivable) results since the
backtester ignores signals that happened during the day but were not
true at the close.
There is something in between (let's call it option 1.5) which is to
trade tommorrow if open > reference_price. But I have not tried this
yet.
Have you had this same experience?. What option do you use and what
are your results?. Any comments about this will be welcome.
Thanks
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