P Reddit Mentions | ChartExchange

**The Ideal Building Sequence (Step by step - from previous post of mine).**
**1. Build a Coherent Prototype:**
Build your strategy’s initial logic structures and refine until coherent before testing anything.
**2. Run your First Backtests:**
Perform your initial backtests; collect in-sample data across multiple liquid financial markets.
**3. Attempt Post-Test Optimisations:**
After your first tests, clip away integral flaws and/or optimise based on the strategy’s needs and logic first.
This is the sole step within the sequence where creative degrees of freedom exist outside of prototyping.
**Avoiding Overfitting:**
To avoid overfitting, adjustments should never be made solely to improve in-sample data; they should instead improve the system’s underlying logic and mechanical sequences. The aim is to engineer a strategy so the job it is designed to perform aligns well with the desired outcome(s). If, after adjustments, the strategy is still ineffective (low to negative EV), you can test other asset classes. If in-sample results are universally mediocre, dispose of the idea and move on.
**Identifying Blindspots:**
Phase 3 is about identifying building blindspots, which can be inherited from both manual idea synthesis and automated idea synthesis (which we do not recommend). If a severe negative result shows up before costs, it is often a sign that the idea had holes in its physical assumptions, or that the first principles the model relied on were weak, misused, or misinterpreted. Remember, finding a persistent negative edge before costs is just as difficult as finding persistent gains before costs in backtesting environments.
If there is a collapse after trading costs are introduced, your minimum stop distance is not wide enough and/or the slippage is too high.
What traders can do is switch products. Some regulated CFDs have better costs when compared to futures and vice versa; it depends on the broker’s liquidity provider setup and whether the strategy holds overnight.
After logical holes are patched up and amendments are made during post-test optimisation, proceed with additional data collection:
**4. Re-test and collect in-sample data with logical enhancements applied.**
**5. Run a secondary data collection. If the results are acceptable, retain the idea.**
**6. Run out-of-sample tests with the edge degradation thresholds e.g., a 50% max drop in returns.**
**7. Reality Checks on Execution Modelling:**
If the idea survives on paper, move on to reality checks on execution modelling:
1. Which type of product is best to execute this strategy cost-wise and net P&L wise?
2. Can my positions be executed realistically on a CFD (for non-US traders), or will I need to rely on futures instead because of high bid-ask spreads or vague order handling and fill quality on inadequate CFD brokers that I can legally access within my jurisdiction?
3. What additional variance do I stand to expose myself to when working with this product when compared to other products? These questions must be asked and answered for every single strategy you develop, both during the design phase and repeatedly when analysing performance data.
# Real Examples of Product Considerations
**Centralised Exchange Futures e.g., ES S&P 500:**
Can have larger variance in bid-ask spreads during market opens and closes (especially), and high overnight maintenance margins can liquidate positions prematurely.
**Regulated CFDs (For Non-USA Citizens):**
On regulated brokers with a matched-principal or back-to-back execution model, CFDs can offer competitive costs with more overnight flexibility (predictable fees instead of discrepancies from high-spread daily rollovers) and low overnight margin requirements, which are often equal to intraday margins.
**Regulated Forward Contracts (For Non-USA Citizens or Professionals):**
Stable but thicker intraday spreads in exchange for no overnight fees, suitable for swing trading strategies on non-USD accounts to avoid currency exchange fees.
**Regulated Spreadbets (Primarily for British Citizens):**
Brokers are principal to my trades on this product; all trades are local, so the broker acts as a counterparty, and brokers hedge directional risk at their sole discretion (a direct financial conflict of interest); spreads can also be amplified compared to CFDs, and last-look execution is also common. These execution delays artificially inflate costs at the point of execution.
Limit orders at some firms are Market If Touched (MIT), making negative slippage possible and eroding the advantage of precise limit order placement. But there is one headline benefit: profits are tax-free (at least in the UK).
However, from past simulations and tests of my own, combined with personal accounting work (this is not tax advice), the cumulative P&L lost from increased costs on intraday strategies often erodes this advantage for net profits.
To this day I have not seen a single regulated spread betting firm with a genuinely low level of conflicts of interest in its infrastructure.
**Important Note:**
If your net worth exceeds €500,000 (outside of property, bullion, pensions, etc.), one can apply to be a “professional” client. Spread bets on forward-contract-like instruments can mitigate overnight holding costs while retaining low margin requirements compared to the underlying futures contract, and the maximum leverage offered to professionals can exceed 1:100 (1% margin requirements). That is a legitimate option that I have explored for CFDs but not one I have explored for Spreadbets as a UK citizen.
**Options:**
Implied volatility (IV) can skew options pricing against random positions, and Greeks such as Theta **θ** can ruin the monetary outcome of trades if the desired outcome is not crystallised in time. Greeks like Vega **ν** can inversely affect many open options, but if one can forecast a future volatility expansion alongside direction (which requires high efficiency and precision), one can opt to use options strategies.
8. If the product you decide to use changes, recollect data over the same in-sample and out-of-sample windows.
9. Your strategy can now be deployed amongst others on a designated capital partition: segregated, risk-isolated accounts that trade one strategy per account in real time for additional testing or real-time execution.
https://preview.redd.it/z167a52277lh1.png?width=1570&format=png&auto=webp&s=8e03a75c4dc64383bb9f998009864468059c5b31
I ran a quick test to prove I wrote this.
The post is somewhat short so I don't think it needs a TLDR. AMA.

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