[jlove]

Hello! I am a relatively new trader and figured it would be a good idea to join these forums and get some feedback on my strategies.

I'm two years out of college (private school in the Northeast), where I studied finance and computer science. A few months ago I came up with a theory for a profitable short-term trading strategy. I bought and downloaded historical stock data from the major US stock exchanges, and I created a script to simulate my proposed strategy based on that data. The result of the simulation was not only profitable, but it far exceeded my expectations.

The results of the testing yielded an average of 1000% annual return before taxes over the past five years, and the simulation did take into account transaction costs. The highest return was 5000% in 2009 and the lowest was 223% in 2008. I finished testing my strategy in mid-March of 2011, and started putting it to action on April 1, 2011. The first month generated a return of 21.99%, and my YTD return is 30% right now (although it is quite volatile so it could change before the end of the day).

I'm looking forward to being a part of these forums and posting my results!

[TheNegotiator]

Hi jlove,

Welcome to TL! I don't want to dampen your expectations but generally you shouldn't expect to get such great results when you test the system in a live market. Backtesting and optimisation of systems is a skill that people take years to master.

[jlove]

TheNegotiator,

Thanks! I'm with you a hundred percent on setting realistic expectations. I have been cautiously optimistic at best, and I am not expecting to generate the returns that I made in the simulation. I was careful to avoid any kind of biases when developing the system and testing such as survivorship bias, data mining, etc. Even still, there were a few drawbacks in my testing that could impact the live performance of the strategy.

My optimism has grown for three reasons: (1) the first month live returns are consistent with the returns from the backtesting, (2) the strategy is simple (mitigating risk of human error), and (3) all decisions are based on quantitative factors so no judgement on my part is required. I am happy about how much my initial amount has grown since implementing the strategy, and while I don't expect to achieve quadruple or triple digit annual returns I hope to at least outperform the market.

[TheNegotiator]

Well I'd definitely say good luck to you then! But the one thing that you must always bear in mind is that even with the most highly effective strategy, if it isn't implemented with strong money management methods, the account will have a margin call before you even see it coming.