Here's the performance summary report for Bollinger Bands strategy described in my earlier post, backtested on Bursa FKLI from Jan 1996 - Sep 2009 (continuous front-month EOD data without adjustment).
and here is the equity curve (before cost) chart.
It surprises me again. The strategy lose money big time! It contradicts with my observation on daily charts that the prices seem to bounce between lower and upper Bollinger Bands. It even challenges the statistical notion that prices tend to fluctuate between 2 standard deviation (should be about 95% of the price movements) from the average moving price of the past x periods. However, all is not lost, it also means that the reverse should be profitable meaning using it as a trend-following strategy instead of a reversal or counter-trend strategy.
The question is, how much risk we'll have to take and what is the minimum capital to start in order to reduce the chances of blowing up our account before reaching the expected profit (maximum adverse excursion)? I'll discuss and post some of the systems based on Bollinger Bands in my future postings.
For now, I'll leave you with one question to ponder. How do we verify that if a performance summary is good then the strategy really work? Couldn't it be profitable just by luck or chance only? In short, how do we trust the backtest result?
Hints on my future postings: What is the problem with this advice that I kept overheard a broker gave to his clients; it goes roughly like this "The market is ranging, when it is ranging you should quickly take profit already...". This is how I always evaluate every advice given by the so call pros--IS IT IMPLEMENTABLE MONEY MAKING ADVICE? It doesn't matter whether the advice make sense or not, as sometimes money making advice counter our logic at first but works nevertheless. As I have shown, even strategies that seems so logical, and is being advised by so many pros proved to be losing money. Go ahead, take your best shots.
Disclaimer: Taken from CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
WHATEVER YOU READ HERE SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS ARE YOUR OWN RESPONSIBILITY.
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