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Been there, done that. This is why I never use S&P cash for testing
intraday systems anymore. If you do find something useful, 9 times out of
10 it will disappear when you switch to futures.
You might try putting a morning filter on your system on the S&P cash and
see if the advantage is still there. Something like: no trades before
11:00am. That is the main culprit I have found in the difference between
S&P cash and futures systems. Stocks in the S&P index that trade on the
NYSE don't always open at 9:30 like NASDAQ stocks do. This creates an
arbtirage opportunity for people to watch indications on un-opened NYSE
stocks and hedge the difference in the futures.
Kent Rollins
----- Original Message -----
From: "David Colin" <david_colin@xxxxxxx>
To: <omega-list@xxxxxxxxxx>
Sent: Sunday, April 06, 2003 2:14 AM
Subject: Cash vs. Futures Woes
I realize this has been discussed here before, but I have been realizing
lately that testing systems on the cash SP is kind of a waste of time. In
the most jarring example of this phenomenon that I have yet encountered, I
was trying of late to build a system based on the NYSE Tick index. I was
using the cash index because my futures data was not properly aligned with
my $Tick data in terms of time stamps, but I figured, if I can get good
results, the difference in the futures shouldn't be all that bad.
I started with the simple premise of buying whenever the NYSE $Tick closed
above a certain level and selling whenever it closed below a certain level.
An optimization run and subsequent OOS runs suggested that 200/-200 was a
good place to start. Much to my surprise just this basic system returned
pretty stellar results on SPX. It traded a lot, but still had a respectable
avg. trade size of $250(+/-) or so. And the equity curve was quite linear.
I proceeded to refine it by adding stops and trend filters and so forth
until I had it earning $2.5 million over a 4 year period and looking as
though I drew the equity curve with a ruler. The DD was so small it wasn't
even worth mentioning.
Well this was just too damn good to be true.
So I did a run through on futures. Here are the results, cash vs. futures,
5 minute charts, 3 month period between Dec 17/02 and March 16/03:
CASH SPX:
Total Net Profit $122,467.50 Open position P/L$995.00
Gross Profit $192,030.00 Gross Loss($69,562.50)
Total # of trades428 Percent profitable54.44%
Number winning trades233 Number losing trades195
Largest winning trade$8,432.50 Largest losing trade($2,512.50)
Average winning trade$824.16 Average losing trade($356.73)
Ratio avg win/avg loss2.31 Avg trade (win & loss)$286.14
Max consec. Winners7 Max consec. losers7
Avg # bars in winners14 Avg # bars in losers7
Max intraday drawdown($4,937.50)
Profit Factor2.76 Max # contracts held1
Account size required$4,937.50 Return on account2480.35%
S&P FUTURES
Performance Summary: All Trades
Total Net Profit $2,187.50 Open position P/L$1,312.50
Gross Profit $138,000.00 Gross Loss($135,812.50)
Total # of trades428 Percent profitable36.45%
Number winning trades156 Number losing trades272
Largest winning trade$8,000.00 Largest losing trade($3,062.50)
Average winning trade$884.62 Average losing trade($499.31)
Ratio avg win/avg loss1.77 Avg trade (win & loss)$5.11
Max consec. Winners7 Max consec. losers14
Avg # bars in winners18 Avg # bars in losers7
Max intraday drawdown($15,187.50)
Profit Factor1.02 Max # contracts held1
Account size required$15,187.50 Return on account14.40%
I realize this system trades a whole hell of a lot, and that these
differences aren't as pronounced on a system that trades less frequently.
But I just wanted to illustrate the degree to which SPX can fool you.
David
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