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msg #133119
12/7/2016 8:41:19 PM

Long 300 TVIX at 10.00 with overnight order for 1 VIX Dec 27 call option, 10.00 strike at 4.00 LMT. Thanks, Kevin, for all your work and help over the months. years.

Backtesting Support · I can trust the backtesting information about my strategy ?
msg #75756
6/24/2009 12:42:56 PM

One useful way of thinking about trading strategies is to categorize them into two basic groups, which display different behaviors in terms of magnitude and relative frequency of beneficial results, as follows:

Investment Type 1. Small probability of large profits. Low win/loss ratio, but hopefully a high rate of return. Purchasing out-of- the-money options, for example. It will take a large number of investments to indicate whether or not such a strategy will be profitable over the long run. Depending on market conditions, your decision rules for the selection of your option purchases may be profitable or lucky for a while, then go south, when fundamentals, technicals, psychology change.

Investment Type 2. High probability of small profits. High win/loss ratio, and usually a lower rate of return. Investing in short term bonds, real estate, or in selling option contracts, or in issuing insurance policies. There may be rare but very large losses. Note that a strategy might appear to be quite stably profitable, until the investment environment changes suddenly, due to market surges or collapses, or interest rates change rapidly in either direction.

Long term success requires use of a device similar to an industrial control chart, where the process upon which investment decisions is based is able to be monitored, and important changes in market conditions can be detected, that is separated from random noise.

Diversifying is required to protect the nest-egg, so that sudden reversals in the case of Investment Type 1, or extended changes in underlying conditions can be mitigated against, usually by diversification over investment vehicles, investment types, or over extensive periods of time.

Backtesting always involves assumptions. The tester should try to be aware of the extent of these and their effects on reported results.

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