Macro Ops

Trading Strategies: Curve Fitting and Over Optimization

An episode of Macro Ops

By Chris
Macro Ops is a collective of amazing humans continually improving in life. From the Global Macro space of financial markets, we reach further than just finance, learning from people in all walks of life in order to bring that mindset, those skills, that thinking into making ourselves better all around.
Cover art photo provided by Tobias van Schneider on Unsplash: unsplash.com/@vanschneider
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Macro Musings - China, EURUSD, Quants, Hardcore History, Breathing
Today's episode is an audio expansion on the weekly Macro Musings email from our free https://macro-ops.com/global-macro-research/ This is a solo episode, with me Chris, expanding a bit about an article from Brian MacKenzie https://powerspeedendurance.com/experiments-art-breath/ about the importance of nasal breathing.  I talk a bit about China and their ownership of the US Film industry and the lack of any anti-Chinese sentiment in US Films.  Hearing about Ken Griffin, Founder of Citadel Capital, recent $238 million  penthouse purchase in NYC and the book The Quants.  $3 billion dollar inflows into Vanguard Total International Bond ETF is a short bet on USD, one of the most crowded trades currently, not just in Macro but across the board.  Dan Carlin's amazing Hardcore History podcast, Blueprint for Armageddon an epic tale of the Somme in World War I.  My EURUSD trade setup and how I approach Macro Trading as a systematic quant.  And finally an interpretation of a quote from the ever belligerent Charlie Munger Follow me @chrisdmacro on Twitter and Instagram
43:05
February 15, 2019
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 going deep on the markets. If you like it and want more, let us know what you’d like to hear. Also if you want more of the long form, tell us what YOU want! Chris talks about what he looks for in a strategy to consider: Predictability - the ability to predict a trade is forthcoming, not predicting the results.  Repeatable - does this setup repeat over time. Define-able - can you clearly define the parameters. What does over fitting look like in trading setups?  “I just want to be consistent.”  Seeking high win rate systems lead us down the path of over fitting.  Random walk price data and finding setups that you start believing are edges, but end up being curve fit on random price series.  Testing in-sample and out of sample data (training and test data sets). Train model on in-sample data, then test it on the out of sample data. If it works on both, you have a system that can initially be considered more robust and not curve fit.  Resiliency is more of what we are looking for to get us in the ballpark on a system. It isn’t fragile, it has more potential to last over time.  Oh but what about Black Swans? Position sizing, taking exits, adding to positions, staying out of the market are where the magic happens when you add them to a resilient system. Where as applying these techniques to a fragile system increases the risk.  Spoiler: Robust systems are uncomfortable to sit through. Building a system that fits your temperament is a key to having success trading a robust system. Get comfortable with being wrong. Backtesting systems, getting experience with the system, learning how you respond while trading the system.  Practice the basics of a system over and over. Get the 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 
23:42
February 8, 2019
Macro Ops Monthly Intelligence Report, Dollar, Tesla and Birds with Alex Barrow
Chris sits down and chats with Macro-Ops Co-Founder Alex Barrow. This one goes deep! If you are looking for an abridged version of the Monthly Intelligence Report, this isn’t it. If you want to download Alex’s views on the markets into your brain operating group, this is the episode for you. We spend over two hours talking about: Adam Robinson’s interview on the Knowledge Project Podcast, part 1 https://fs.blog/adam-robinson-pt1/ and part 2 https://fs.blog/adam-robinson-pt2/ And go over how he looks at markets. We cover Copper to Gold Ratio and how the Credit market leads equities. Tesla short. Why everyone is bearish the dollar? How do we play that? Gold leading the dollar, Platinum leading gold and what price levels are important there. Global recession outside of the US. Chris’s labored retail store as trading analogy, losses are operating costs. Building better systems, better mental models and stepping away. Alex was a sniper in the United States Marine Corps, and how that transfers over directly to trading. Alex breaks down how he looks to manages his book, risk exposure, mistakes and waiting for the things that are obvious to find high expectancy positions. Waiting for the one to two big macro opportunities per year. Chris goes on, again, about the C-O-N-spiracy brokers have about getting successful people to think trading is easy and they should open accounts only to find the WORST User Interface/User Experience (UI/UX) platforms to trade on. ROAD (Construction Partners) long position on an IPO from 2018. We dig in to some of the excellence in management running this company and the expected price value. US Equity Household allocation is near all time highs. And birds! Alex can be reached at @macroops on Twitter or Alex@macro-ops.com Chris can be reached at @chrisDmacro on Twitter and Instagram or chris@macro-ops.com
2:19:16
January 23, 2019
Volatility, Smart Beta, Ancient Chinese Philosophy and Poker
 Chris chats with Macro-Ops Co-Founder Tyler Kling.  We discuss how Tyler got into the finance world out of school at a family office, then moving on to trading for himself.  Tyler is heavily focused on the Volatility Complex and talks about a call he put out on VXX and VIX near the December low’s in the markets and what that looks like now.  We touch on the indecision currently in the markets and Chris’s short trade setup and contingency plan on the S&P this week.   This week Tyler wrote about a Classical Chinese text from thousands of years ago, the Zhuangzi and how it applies to traders today. Bleak stuff indeed!  Check out the article here: https://macro-ops.com/play-to-win-or-go-out-like-broomcorns-uncle/ Optionality, finding smart beta with a macro overlay and looking to get paid by the market for that risk. Getting out of the reactive state and making the best decisions when they are the most obvious.  Then finally we get to Poker! You can reach Tyler at @TylerHKling on Twitter or tyler@macro-ops.com And you can reach Chris at @chrisDMacro on Twitter and Instagram or chris@macro-ops.com 
1:04:55
January 20, 2019
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