BO60: Improving a Broken Model...can it be done?

Top Traders Unplugged

Niels Kaastrup-Larsen

Business, Business News, Investing, News

4.8 • 670 Ratings

🗓️ 20 April 2020

⏱️ 12 minutes

🔗️ Recording | iTunes | RSS

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Summary

Listener question on how to improve a strategy that seems to be broken. Should you take an overall approach, or discard any particular markets that haven’t trended for a while?

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Transcript

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0:00.0	The next question he has is, how do you determine when a model is broken?
0:08.4	Do you fix broken parts of the model or just the whole?
0:13.2	If a back test includes markets that don't make money over the life, do you re-optimized
0:18.8	those markets or let them ride? mark i think we've touched a
0:23.9	little bit upon this but maybe you want to deal with the question about the model being broken and
0:29.0	how do we how do we fix that do you want to start on this one more the second question is much easier we just you know if you
0:40.3	it's inevitable that you're going to have some once you're done your your testing and your research
0:47.0	you're happy with your system it makes good money and you're going to have a couple markets in
0:52.6	there that underperform lose money and then some that are amazingly great.
0:57.6	So you don't do anything with either of those.
0:59.9	You size, we weight those markets on the portfolio.
1:06.3	We pay no attention to historical performance.
1:09.4	Let's say wheat is not a good performer, cocoa, bean oil.
1:15.3	They're great because they add diversification.
1:17.6	So they get an equal weighting with the yen and the crude that are probably the best money makers, let's say.
1:24.2	And some stock out there, of course.
1:27.1	But they get a weighting that's based upon their contribution
1:31.6	to the portfolio based on correlation only all trades make the same amount of money well wait a
1:37.2	second we lost money okay that's another show we'll get into that but trust me they all make
1:42.3	we need to assume that their expectation
1:44.8	for every trade is the same. When a system is broken, I think, you know, that's a tough question.
1:52.9	Trend following looks broken because there's no trends now. Okay, so my system, though, let's say we
	...

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