Richard Brennan joins us to reflect on the learnings so far from the new CTA series. We also discuss how to set your stop loss when entering a new position and why you should not allow your trend models to go "backwards", how to fit your model to price data and why it is important to understand the signal to noise ratio in your trading to avoid overfitting. Additionally, we discuss how random entries can work for your models, but why they are not truely random and the challenge of separating luck from real signal, why it is preferable to have an under-fit model as opposed to an over-fit model when developing a trend following system and how to reduce your chances of having an overfit solution. We round off our conversation discussing why trend following is not as easy as it might seem and much more.
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Episode TimeStamps:
03:17 - Reflecting on the CTA Series
09:55 - What happened this week?
12:42 - Q1, Jordan: Regarding setting stop loss when entering a position
15:39 - Q2, Mark: Entry lookback vs exit lookback?
19:23 - Signal to noise masterclass
36:03 - The Tom Basso experiment
46:34 - The challenges of creating models
52:40 - Avoiding overfit - Don't pick the "best" parameters
57:23 - Avoiding overfit - Apply the Golden Rules
01:00:19 - Using visual mapping
01:03:50 - Avoiding overfit - trade multiple markets
01:07:34 - Trend Following is not easy
01:14:04 - The January trend report
01:15:46 - Thanks for listening
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