Track 08Module 5 of 511 sources
Building and testing a system
Write rules precise enough to test, test them without fooling yourself, and know when a backtest means nothing.
Key ideas
- If you cannot write the rule down, you cannot test it, and you do not have a method.
- Try enough variations and one will look brilliant by chance. Count how many you tried and discount the best result accordingly.
- Test on data the rule has never seen, include realistic costs and slippage, and expect live results to be worse.
- Simple rules with few parameters survive. Diversifying across uncorrelated rules does more than perfecting one.
Start hereWatch or read these first. They carry the core idea.
How quant trading strategies are developed and tested w/ Ernie Chan
Video · Chat With Traders · 1:00:39
How quantitative strategies are developed and tested in practice.
Dangers of Backtest Overfitting - Marcos Lopez de Prado
Video · Alex Bernal · 20:41
Why most backtests are wrong, in twenty minutes.
Course
Varsity Module 10: Trading Systems
Zerodha Varsity
Trading systems, including pairs trading, as a written course.
CoreThe standard references. Work through them once the idea is clear.
Book
Systematic Trading ft. Aamod K
Playlist · In The Money by Zerodha · 6 videos
Six conversations on systematic trading in Indian markets.
How Mark Minervini Became a Market Wizard
Video · TraderLion · 56:23
How one discretionary trader turned a method into rules.
The Perfect VCP Trading Setup with Mark Minervini
Video · TraderLion · 38:25
One setup defined precisely enough to scan for.
Jim Simons (full length interview) - Numberphile
Video · Numberphile2 · 1:00:43
An interview with the founder of the most successful quantitative fund.
Book
Go deeperResearch, primary sources and data for when you want the detail.
Book
How to Make Money in Stocks
William J. O'Neil
A rule-based growth method built from historical winners.
Book
Advances in Financial Machine Learning
Marcos Lopez de Prado
Machine learning for finance done properly. Technical.
Practice
Write your best setup as five rules a stranger could follow. Check them by hand on twenty past charts, including the ones that failed.
See it live
Where this leads
08.1 · Risk, Losses and ProcessPosition sizing and risk of ruinTurn a stop distance and an account size into a position, and understand why sizing matters more than entries.04.3 · Investing and ValuationFactors: value, momentum, quality and low riskKnow the handful of return patterns with real evidence, how they behave in India, and why they sometimes fail for years.