1 hr 29 min

SI155: How to Create the Perfect Backtest ft Richard Brennan Top Traders Unplugged

    • Investing

This week, Richard Brennan joins us to discuss whether there are any similarities between Trend Following and other investment approaches, the benefits of ‘forward-testing’ a system, the art of ‘hunting outliers’, what the optimum level of leverage could be, how much total portfolio ‘risk-to-stop’ to aim for, some thoughts on margin requirements, and which other strategy complements Trend Following the best. We also took a deep dive into backtesting, touching on topics such as: how much we can safely derive from a backtest, why a backtest with a smooth equity curve should raise alarm bells, a good checklist to use when creating a backtest, and whether some level of curve-fitting may actually be required for a good backtest.
In this episode, we discuss:
Which strategies would complement portfolio with 80% already allocated to Trend Following
Why 'forward-testing' a system can be quite important before going live
The art of finding and latching onto outlier performers
Leverage, margin, and total portfolio risk-to-stop
What information to look for in a backtest
How to avoid 'curve-fitting' (and could some curve-fitting be beneficial?)
Follow Niels on https://twitter.com/toptraderslive (Twitter), https://www.linkedin.com/in/nielskaastruplarsen (LinkedIn), https://www.youtube.com/user/toptraderslive (YouTube) or via the https://www.toptradersunplugged.com/ (TTU website).
Follow Rich on https://twitter.com/@RichB118 (Twitter).
IT’s TRUE 👀 – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written http://bit.ly/36bzny2%22%20%5Ct%20%22_blank (here).
And you can get a free copy of my latest book “The Many Flavors of Trend Following” http://www.toptradersunplugged.com/book%22%20%5Ct%20%22_blank (here).
Learn more about the Trend Barometer https://www.toptradersunplugged.com/resources/market-trends/%22%20%5Ct%20%22_blank (here).
Send your questions to info@toptradersunplugged.com
And please share this episode with a like-minded friend and leave an honest rating and review on https://itunes.apple.com/us/podcast/top-traders-unplugged-niels/id888420325?mt=2%22%20%5Ct%20%22_blank (iTunes) so more people can discover the podcast.
Episode TimeStamps:
00:00 – Intro
03:25 – A massive thank you to listeners of the show for leaving your 5-star reviews on iTunes
03:47 – Macro recap from Niels
05:57 – Weekly review of performance
10:59 – Trend Followers as hunters of outliers
13:34 – Q1; Louis: Do you recommend starting a new model with lower leverage, so that it has time to adjust to the markets?
20:02 – Q2; Aaron: If you had to choose a different strategy to complement your main Trend Following strategy, which one would you choose, and why?
25:03 – Q3; Graham: How much margin do you use on different instruments? What total portfolio risk-to-stop do you recommend?
35:23 – ‘The good, the bad, and the ugly’ of backtesting
52:50 – How to make a backtest as objective and robust as possible
01:25:49 – Benchmark performance update

This week, Richard Brennan joins us to discuss whether there are any similarities between Trend Following and other investment approaches, the benefits of ‘forward-testing’ a system, the art of ‘hunting outliers’, what the optimum level of leverage could be, how much total portfolio ‘risk-to-stop’ to aim for, some thoughts on margin requirements, and which other strategy complements Trend Following the best. We also took a deep dive into backtesting, touching on topics such as: how much we can safely derive from a backtest, why a backtest with a smooth equity curve should raise alarm bells, a good checklist to use when creating a backtest, and whether some level of curve-fitting may actually be required for a good backtest.
In this episode, we discuss:
Which strategies would complement portfolio with 80% already allocated to Trend Following
Why 'forward-testing' a system can be quite important before going live
The art of finding and latching onto outlier performers
Leverage, margin, and total portfolio risk-to-stop
What information to look for in a backtest
How to avoid 'curve-fitting' (and could some curve-fitting be beneficial?)
Follow Niels on https://twitter.com/toptraderslive (Twitter), https://www.linkedin.com/in/nielskaastruplarsen (LinkedIn), https://www.youtube.com/user/toptraderslive (YouTube) or via the https://www.toptradersunplugged.com/ (TTU website).
Follow Rich on https://twitter.com/@RichB118 (Twitter).
IT’s TRUE 👀 – most CIO’s read 50+ books each year – get your FREE copy of the Ultimate Guide to the Best Investment Books ever written http://bit.ly/36bzny2%22%20%5Ct%20%22_blank (here).
And you can get a free copy of my latest book “The Many Flavors of Trend Following” http://www.toptradersunplugged.com/book%22%20%5Ct%20%22_blank (here).
Learn more about the Trend Barometer https://www.toptradersunplugged.com/resources/market-trends/%22%20%5Ct%20%22_blank (here).
Send your questions to info@toptradersunplugged.com
And please share this episode with a like-minded friend and leave an honest rating and review on https://itunes.apple.com/us/podcast/top-traders-unplugged-niels/id888420325?mt=2%22%20%5Ct%20%22_blank (iTunes) so more people can discover the podcast.
Episode TimeStamps:
00:00 – Intro
03:25 – A massive thank you to listeners of the show for leaving your 5-star reviews on iTunes
03:47 – Macro recap from Niels
05:57 – Weekly review of performance
10:59 – Trend Followers as hunters of outliers
13:34 – Q1; Louis: Do you recommend starting a new model with lower leverage, so that it has time to adjust to the markets?
20:02 – Q2; Aaron: If you had to choose a different strategy to complement your main Trend Following strategy, which one would you choose, and why?
25:03 – Q3; Graham: How much margin do you use on different instruments? What total portfolio risk-to-stop do you recommend?
35:23 – ‘The good, the bad, and the ugly’ of backtesting
52:50 – How to make a backtest as objective and robust as possible
01:25:49 – Benchmark performance update

1 hr 29 min