I completed the testing of my latest trading model on paper after being spooked by a losing streak. However, after reviewing all the data today, as Commander Data would say, "Everything is operating within normal parameters."
In the first image you can see the optimisation of the training data I used for a genetic algorithm. (Click images to enlarge). I decided upon the very first set of entries and exits because this gave a large yield with a very good Sharpe Ratio. There is a better Sharpe Ratio in the data but for far fewer trades, which creates the risk of more variance.
Looking at the data more closely I can see where I can create some new fitness metrics. Maybe something that utilises both Sharpe and absolute yield.
The equity curve for the 30, -77, 16 entry/exit vector looks rather smooth with no large drawdowns. You would expect that with a Sharpe Ratio of 5.42
I setup a bot to trade this entry/exit vector with new code to handle the new metrics that I had created. Minimum £2 trades were used so as to minimise risk whilst testing the new code under live conditions.
The sudden drop in equity spooked me and so I continued trading on paper, using the bot to collect data only rather than place any trades.
My fears were unfounded and the trades performed largely as the model expected. As can be seen in the test figures below, Sharpe and average yield were slightly higher. As the test trades were about 10% the number of optimisation trades then we can look at the previous optimisation equity curve and see similar drops if we split the curve into 10% chunks but which make no impact on overall profitability. In other words, I was spooked by the difference in scale between the charts. (A beginner's mistake. I should sit in a corner for 10 minutes.)
Also, I was confused by the bot's trade log producing figures that do not tally with what actually happened so there appears to be a bug in the bot. In the meantime the bot is not running until I am 100% sure that everything is working. I also need to get on with my new book as I have not touched it for a few months. The weather is good for tennis so I want to get some exercise rather than sitting here all day otherwise everything will be for naught.
