What metrics / criteria determine if the backtest is worth pursuing further...ie paper-trading / live trading?
I do live trading with small amounts because paper trading is not realistic of what occurs in the market. If the profit factor of live trading is less than 75% of that of the backtest and/or the drawdown is higher than 75% of that of the backtest I drop the system. Backtesting is dangerous when data are used multiple times to adjust system parameters, a process known as data-mining. This blog article touches on some of these points and provides some suggestions for improving results: article
Hello Adam,
I'm no expert, but my sense is that it is gonna depend on what you are trying to accomplish. If you ultimate goal is to trade with real money, then you should probably start with an assessment of how much you could afford to lose, relative to your net worth and financial responsibilities (present and future). If the algorithm requires lots of capital that you do not have, then as a practical matter, you won't be able to pursue the strategy.
Just for yucks, I've launched a few algorithms into the Quantopian paper trading application (not Interactive Brokers). I suggest starting there.
Grant
Great references, thanks for sharing
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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.