How to backtest martingale strategy?

[Anthony Amato]

Hi,

I was wondering if there was a feature on this platform that could trigger another trade based off the status of a trade that was already placed. So for example, if the backtest platform placed a put credit spread, and that trade lost, how could I set it up so that the loss of that particular trade would trigger another trade to be placed? 

Thanks!

[OptionStack]

You can simulate a martingale strategy by rolling a losing position for even or better, increasing the position size as necessary so that the roll is done for even or a net credit.

For example, the following strategy sells a call vertical and rolls the call vertical further out of the money whenever the original short vertical is losing 20% or greater. The roll is done for a (netRollCost = 0), increasing the position size as necessary in order to perform the roll for even or better.

Attached is a template that you can import into your account.

The material on this website is provided for informational purposes only and does not constitute a solicitation to sell nor offer to buy, nor a recommendation for any security or strategy, nor does it constitute financial, legal, tax, or other advice. There are no guarantees as to accuracy or completeness of the views expressed in the website.  Past performance is no indication or guarantee of future results. The content is provided for personal use and is subject to change without notice.   All investments involve risk – including loss of principal. You should consult with an investment professional before making any investment decisions.

[Brooks Rimes]

I would suggest looking into an anti-martingale strategy.  I've done independent work with it (live) and it works quite well.  Here's how it works: start by trading a minimum number of contracts, after each win double the number of contracts up until you reach a maximum that you decide, when you have a loss, halve the number of contracts until you reach the minimum.  

This has the effect of reducing your risk and losses when you enter a drawdown period.  And it increases your equity during winning streaks.  You can try modeling this in Excel and see how it works.  It does require that your system has a positive expectation and it works particular well with systems that have a high percentage of winning trades, even if the average loss is somewhat larger than the average win.

Brooks

[Anthony Amato]

How did it perform on the backtesting software?

[Brooks Rimes]

It worked well, giving an exponential equity curve.  Like any system, there are losing trades and periods of drawdown, but this sizing strategy recovers from them pretty quickly.  If possible, I'd suggest systems with high win percentages of 70, 75 or 80%, even if the individual wins are small.  

You may want to check out trading books by Prof. Howard Bandy, a sharp guy and systematic trader.  An expert on Amibroker.  I have no financial connection with Mr. Bandy, just a fan of his books.  He recommends systems with high win percentages and to trade often.  Trading more often helps smooth equity curves.  I've moved from monthly option trading to weekly option trading.  Hope this is helpful.

Brooks

On Monday, June 12, 2017 at 11:19:07 PM UTC-4, Anthony Amato wrote: