Macro-Ops Podcast: Trading Strategies, Curve Fitting and Over Optimization

Chris and Tyler talk about curve fitting and over optimization of trading strategies.

This episode is a lot shorter than normal, we touch on a single subject vs covering a wide variety of subjects. If you like these short and pointed episodes and want more, let us know! If you prefer long form drop us a line. Tell us what YOU want!

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If you want to play this in a different podcast app, this is the RSS Feed https://anchor.fm/s/870c5d0/podcast/rss

In this episode Chris starts off talking about what he looks for in a trading strategy:

  • Predictability – the ability to predict a trade is forthcoming, not predicting the results.  
  • Repeatable – does this setup repeat over time?
  • Definable – can you clearly define the parameters?

Tyler and Chris then go on to discuss the following:

What does over fitting look like in trading systems?

Why seeking high win rate systems leads us down the path of over fitting.

“Finding” setups in random walk price data. How our brains are easily fooled by randomness.

Testing logic on in-sample and out-of-sample data (training and test data sets). A model that works well on both sets is best.

Why resilience is our true goal for a trading system. If it isn’t fragile, it has more potential to last over time.

How to deal with black swan risk. (Risk that doesn’t show up in any past data sets.)

Why robust systems are uncomfortable to sit through.

Why building a system that fits your temperament is the key to having success.

Finally we hit on why we all need to practice the basics of a system over and over. Get those reps in!

You can reach Tyler at @tylerhkling on Twitter and tyler@macro-ops.com

You can reach Chris at @chrisdmacro on Twitter and chris@macro-ops.com

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.

AK

Investing & Personal Finance

AK is the founder of Macro Ops and the host of Fallible.

He started out in corporate economics for a Fortune 50 company before moving to a long/short equity investment firm.

With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

Tyler Kling

Volatility & Options Trader

Former trade desk manager at $100+ million family office where he oversaw multiple traders and helped develop cutting edge quantitative strategies in the derivatives market.

He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

Certified in Quantitative Finance from the Fitch Learning Center in London, England where he studied under famous quants such as Paul Wilmott.

Alex Barrow

Macro Trader

Founder and head macro trader at Macro Ops. Alex joined the US Marine Corps on his 18th birthday just one month after the 9/11 terrorist attacks. He subsequently spent a decade in the military. Serving in various capacities from scout sniper to interrogator and counterintelligence specialist. Following his military service, he worked as a contract intelligence professional for a number of US agencies (from the DIA to FBI) with a focus on counterintelligence and terrorist financing. He also spent time consulting for a tech company that specialized in building analytic software for finance and intelligence analysis.

After leaving the field of intelligence he went to work at a global macro hedge fund. He’s been professionally involved in markets since 2005, has consulted with a number of the leading names in the hedge fund space, and now manages his own family office while running Macro Ops. He’s published over 300 white papers on complex financial and macroeconomic topics, writes regularly about investment/market trends, and frequently speaks at conferences on trading and investing.

Macro Ops is a market research firm geared toward professional and experienced retail traders and investors. Macro Ops’ research has been featured in Forbes, Marketwatch, Business Insider, and Real Vision as well as a number of other leading publications.

You can find out more about Alex on his LinkedIn account here and also find him on Twitter where he frequently shares his market research.