from Hacker News

Changing a mean reversion strategy to deliver 30% annual returns since 1999

by carlossouza on 6/17/24, 1:44 AM with 31 comments

• by czl on 6/17/24, 4:58 AM

  Essential reading for all prospective traders is Taleb's "Fooled by Randomness."

  Markets are full of feedback loops, so you can't expect the same results with "paper" backtesting or "paper" forward testing as with real trades, especially in larger amounts.

  With such paper testing you can discover and fool yourself with amazing high-probability, high-earning strategies that come with the hidden surprise of low probability catastrophic losses.

  For example, many naive gamblers think that a strategy with a 45% chance to win, combined with betting to cover losses, will nearly always succeed because the odds of losing ten times in a row seem low. However, when the inevitable 11th loss occurs, it can be devastating.

• by OutOfHere on 6/17/24, 4:40 AM

  I think the risk of a 35% drawdown is too big with this strategy. Even if 20%, it's still too big. Perhaps 15% would be about at the borderline of okay.

• by spicyusername on 6/17/24, 12:26 PM

  What tools and services does one use to do this kind of testing?

  Where does the data come from?