7/25/2019 Flow Chart for Quant Strategies

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Trade System DevelopmentFlow Chart

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Return Objective: 90%

Ideal t-score: 3.50

Ruin: -30%

Time Horizon (Trades): 1000

Start

Objectives

Paradigm

ShiftDefine the Base System

(Theory) & Null-

Hypothesis

Entry Rules

Exit RulesFilters

Execution Rules

Time Frame

Backtest

Base

System

Sample Data

Out - SampleIn -SampleBacktest Base System

Backtest

Reports

Add one new

rule

Optimize

BacktestYes

No

Is the t-score greater

then the Critical (t)Value?

Yes No

(Start over)

Is the t-score greater

then the Critical (t)Value?

(Drop Rule)

(Add Rule to the

base system)

NoIs the t-score

greater then Ideal

t-score Number?

Yes

Test robustness, runon multiple time

frames

Are the other timeframe

higher than the Critical (t)

Value?

No (Start over)

Yes

Reject the Null-

Hypothesis

1

1Backtest system on

entire sample.

Apply risk

management and

run Monte CarloDoes the Monte Carlos

meet the defined

objectives?

No (Start over)

Yes

Did the run

meet the

objectives?No

Start over

Curve fitted

Yes

Walk Forward

Testing

Chi Distribution

Test

System Pass

or fail the Chi

test?

Fail

Pass

Start over, check

execution rules!

Finish

Robustness

Report

Risk Management &

Monte Carlo

Walk

Forward

Report

Chi -

squared

test

Full -run

Report

Keep the In-Sample to a small

portion of the entire sample in

order to avoid curve fitting and to

When running live monitor trades and make sure

that the system is following the same probabilities

calculated with another Chi-test.

First rule should be

MAE and MFE

by: Aaron Soderstrom internal use only