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Flow Chart For Quant Strategies

This flow chart outlines the process for developing a trade system. It involves: 1) Defining objectives, paradigms, and a base system for backtesting. 2) Backtesting the base system on in-sample data and checking if objectives are met. 3) If not, adding new rules and backtesting iteratively until objectives are met. 4) Walk forward testing and checking robustness on multiple time frames. 5) Applying risk management, Monte Carlo analysis, and additional testing to ensure objectives are still met. 6) If all tests pass, the system is approved for live trading with ongoing monitoring.

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Kaustubh Keskar
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445 views

Flow Chart For Quant Strategies

This flow chart outlines the process for developing a trade system. It involves: 1) Defining objectives, paradigms, and a base system for backtesting. 2) Backtesting the base system on in-sample data and checking if objectives are met. 3) If not, adding new rules and backtesting iteratively until objectives are met. 4) Walk forward testing and checking robustness on multiple time frames. 5) Applying risk management, Monte Carlo analysis, and additional testing to ensure objectives are still met. 6) If all tests pass, the system is approved for live trading with ongoing monitoring.

Uploaded by

Kaustubh Keskar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Flow Chart

1 of 1

Trade System Development


Start
Objectives
Return Objective:

Ideal t-score:
Ruin:
Time Horizon (Trades):

Keep the In-Sample to a small


portion of the entire sample in
order to avoid curve fitting and to

Paradigm
Shift

Define the Base System


(Theory) & NullHypothesis
Entry Rules
Exit Rules
Filters
Execution Rules
Time Frame

90%
3.50
-30%
1000

Sample Data

Backtest Base System


Backtest
Base
System

Yes
First rule should be
MAE and MFE

Yes
Is the t-score
greater then Ideal
t-score Number?

(Start over)
Is the t-score greater
then the Critical (t)
Value?

Full -run
Report

Backtest system on
entire sample.

No

Add one new


rule

No

Out - Sample

In - Sample

Did the run


meet the
objectives?

No

Backtest
Reports

Walk
Forward
Report

Yes
(Drop Rule)
(Add Rule to the
base system)
Test robustness, run
on multiple time
frames

Is the t-score greater


then the Critical (t)
Value?

No

by: Aaron Soderstrom

Walk Forward
Testing

Optimize
Backtest

No

Chi Distribution
Test

(Start over)

Chi squared
test

(Start over)

Yes
Robustness
Report

No

Yes

Start over
Curve fitted

Are the other timeframe


higher than the Critical (t)
Value?

Apply risk
management and
run Monte Carlo

Risk Management &


Monte Carlo

Yes
Does the Monte Carlos
meet the defined
objectives?

Reject the NullHypothesis


Start over, check
execution rules!

When running live monitor trades and make sure


that the system is following the same probabilities
calculated with another Chi-test.

internal use only

System Pass
or fail the Chi
test?

Fail
Pass

Finish

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