The Kaufman Efficiency Ratio (ER) was developed by Perry Kaufman and is introduced in his excellent book ‘Trading Systems and Methods’. The ER serves to quantify the amount of market noise. Noise is the random and erratic price movement that surrounds any underlying market direction. The ER is calculated as the absolute net change in […]

Have you ever created a strategy that backtests spectacularly, only to see it completely fail in real-time? You’re certainly not alone. Unrealistic spread is a very common cause of overly optimistic backtest results. Here I’ll demonstrate how a low backtest spread can fool you, and offer some suggestions on how to backtest with realistic spreads. […]

We begin the next phase of our robustness testing workflow with the reduced basket of 56 GBPJPY strategies generated using StrategyQuant’s genetic algorithm. These 56 strategies managed to remain profitable when tested over an additional 5 forex markets. We will continue to shortlist robust strategies by conducting another difficult out-of-sample (OOS) test, in the form […]

After emerging from the rigours of optimization and robustness testing, it is time to verify our strategy’s performance using tick data. Tick data records every price movement over the historical period, helping maximize our backtest precision. Figure 1 below shows an example of AUDUSD tick data obtained from Tickstory, with numerous prices per second. Figure […]

Having shortlisted a basket of markets to develop your strategy on, the next step is to determine your entry rules. Your strategy’s entry is arguably the most important element of your strategy. The exit has a significant impact on your bottom line, but it is the entry that determines your ability to accrue floating profits. […]