Hello all,
I am hoping someone can explain to me what is going on with this backtest. The position & transaction logs do not make sense to me after the 2008 crash. The logic is fairly simple and should trade according to Bollinger band levels.
Thanks,
Phil
The short answer to what you are seeing is leverage. The algo isn't keeping leverage in check. Pre-2008 it zooms up as high as 10x but then after that it goes negative.
The culprit is the my_compute_weights function. Specifically this statement
long_weight = 1.0 / len(context.longs)
It doesn't consider the existing positions and weights new orders as if there weren't any current holdings. Hence, the leverage goes way up as more and more positions are added. So, actually a second issue is positions aren't being closed as fast as they are opened. This may be ok but it just exacerbates the leverage issue. Maybe do something like this?
long_weight = 1.0 / (len(context.longs) + len(context.portfolio.positions))
However, another way is to have a fixed number of positions and always close, say, the poorest performing ones?
Finally, since the leverage and associated gains are so high, the portfolio value becomes very large. There aren't enough shares available to make some of the desired trades. You will notice in the logs a lot of messages "Your order for xxx shares of ABC has been partially filled...". This may be why you felt the transactions looked odd?
You may find it instructive to add the following to the record method. This will track leverage and the number of positions
def record_vars(context, data):
record(lev=context.account.leverage, pos=len(context.portfolio.positions))
Hope that helps a bit? See attached backtest.
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The material on this website is provided for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation or endorsement for any security or strategy, nor does it constitute an offer to provide investment advisory services by Quantopian.
In addition, the material offers no opinion with respect to the suitability of any security or specific investment. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action as none of Quantopian nor any of its affiliates is undertaking to provide investment advice, act as an adviser to any plan or entity subject to the Employee Retirement Income Security Act of 1974, as amended, individual retirement account or individual retirement annuity, or give advice in a fiduciary capacity with respect to the materials presented herein. If you are an individual retirement or other investor, contact your financial advisor or other fiduciary unrelated to Quantopian about whether any given investment idea, strategy, product or service described herein may be appropriate for your circumstances. All investments involve risk, including loss of principal. Quantopian makes no guarantees as to the accuracy or completeness of the views expressed in the website. The views are subject to change, and may have become unreliable for various reasons, including changes in market conditions or economic circumstances.