Evaluating Trading Strategies, from Stefan Jovanovich

2015-01-05 · Stefan Jovanovich
Original source

Here is an interesting paper and nice reference to a concept called the Probability of Backtest Overfitting (PBO).

Abstract:

We provide some new tools to evaluate trading strategies. When it is known that many strategies and combinations of strategies have been tried, we need to adjust our evaluation method for these multiple tests. Sharpe Ratios and other statistics will be overstated. Our methods are simple to implement and allow for the real-time evaluation of candidate trading strategies.

Comments

gpc on January 5, 2015 9:17 pm

Thank you for the link to the paper. I believe the late Halbert White had a program called “Reality Check” for tradestation that did something similar.