Traders' Roundtable

is that margin/interest rates are not fixed hisotrically. if you look at the mt. lucas index (and a number of other CTA studies) you will find that the tbill return is a MAJOR contributor to managed futures returns (in many cases, about half).

so, "fixing" the margin and t-bill rates doesnt make sense to me. rather, trading blox should allow for rates that are/were consistent with the year/month of the backtest.

while commercial paper rates are about 4.5% right now....they were in the mid teens in the early 80's . ..

Budonk,

You make an excellent point, and I believe that backtesting is useful in general, but does have some drawbacks that should be taken into consideration when estimating 'real' trading performance.

These include (and are not specifically applicable to TradingBlox - I have not used this software - only read the user guide):

• How far back tick data is available
  The quality of the historical data (compared to what actually happened)
  How contract rollovers are handled
  How slippage is estimated
  How margin utilization (including margin debits and credits) are handled
  Survivorship bias
  Corporate actions (splits, dividends, mergers, acquisitions)
  Earning restatements or other 'after the event' corrections
  Look-forward errors in system programming

All we can do is use backtesting as a useful estimation of how a system may have performed, and use it to test the relative merits of various instances of the trading system. Real money trading is a whole different game, and one should always proceed with caution (i.e. trade very small at first) no matter what kind of fantastic results one gets from backtesting (with whatever software).

Paul

p.s. if you email me I will send you a copy of an article I wrote called 'The Main Caveats of Backtesting' which goes into more detail (but BEWARE, by revealing your email address to me you are leaving the door wide open for possible occasional trading-related emails from PMKing Trading containing special offers due to my business relationships with other trading-related firms, with the option to unsubscribe and never hear from me again of course

Paul

hey gang -- any progress on adding the interest rate/margin rate doohickey?

thanks - durabo

Hello everybody,

About the margin amount, yes, that's a problem: just compare today's crude oil margin with those of 10 years ago.
But the solution is pretty simple ( even if it requires some programming effort): as some other testing softwares, just allow the user to input margins both in absolute value or in percent terms.
As a sort of "wish list", I propose this change for future TB updates.

As for interest income, until it will be possible to input the historical series of T-Bill rates, I suppose that is better to test without considering this income (e.g. as if interest income were zero or near zero), unless we are testing very conservative position sizing.
In this latter case, I see no alternative than the input of the average TBill rate in the period considered.
This is an approximation, but - no matter how precise we try to be - hypothetical testing will always be an approximation.

How about incorporating some of the SPAN algorithims into the margin calculations? Would this be at all feasible or appropriate?