Benchmarking backtest results against random trading part 2

In the first part of this article, I described a procedure for empirically testing whether a trading strategy has predictive power by comparing its performance to the distribution of the performance of a large number of random strategies with similar trade distributions. In this post, I will present the results of the simple example described …

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Benchmarking backtest results against random strategies

Picture this: A developer has coded up a brilliant strategy, taking great care not to over-optimize. There is no look-ahead bias and the developer has accounted for data-mining bias. The out of sample backtest looks great. Is it time to go live?    I would’ve said yes, until I read Ernie Chan’s Algorithmic Trading and realised …

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