Simulation and relative performance

Pete

7 years ago

[This article was first published on Shifting sands, and kindly contributed to R-bloggers]. (You can report issue about the content on this page here)

Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.

There’s been some nice posts on randomness the last week or so, in particular here and here.

I would like to look at how we can use simulations to get a better understanding of how some aspect of a trading system holds up relative to a bunch of random trades.

In this example, I look at entries on weekly data for SPY. The entry signal is to buy if the previous week closed down. < o:p>

Over the time frame (2005-2014, about 10 years), it was long about 44% of the time, and out the rest. < o:p>

In the simulation function, we generate random entry signals that will see us long about the same amount of time. < o:p>

We track some metrics of system performance, in this case total return, average trade return and accuracy (i.e. how often a buy signal was correct). < o:p>

I then use ggplot to make some density plots of the simulation metrics, marking the mean of the simulation results in red and the corresponding system metric in blue. < o:p>

< !--[if gte mso 9]>< xml> < o:OfficeDocumentSettings> < o:AllowPNG/> < ![endif]--> < !--[if gte mso 9]>< xml> < w:WordDocument> < w:View>Normal < w:Zoom>0 < w:TrackMoves/> < w:TrackFormatting/> < w:PunctuationKerning/> < w:ValidateAgainstSchemas/> < w:SaveIfXMLInvalid>false < w:IgnoreMixedContent>false < w:AlwaysShowPlaceholderText>false < w:DoNotPromoteQF/> < w:LidThemeOther>EN-AU < w:LidThemeAsian>JA < w:LidThemeComplexScript>X-NONE < w:Compatibility> < w:BreakWrappedTables/> < w:SnapToGridInCell/> < w:WrapTextWithPunct/> < w:UseAsianBreakRules/> < w:DontGrowAutofit/> < w:SplitPgBreakAndParaMark/> < w:EnableOpenTypeKerning/> < w:DontFlipMirrorIndents/> < w:OverrideTableStyleHps/> < w:UseFELayout/> < m:mathPr> < m:mathFont m:val="Cambria Math"/> < m:brkBin m:val="before"/> < m:brkBinSub m:val="--"/> < m:smallFrac m:val="off"/> < m:dispDef/> < m:lMargin m:val="0"/> < m:rMargin m:val="0"/> < m:defJc m:val="centerGroup"/> < m:wrapIndent m:val="1440"/> < m:intLim m:val="subSup"/> < m:naryLim m:val="undOvr"/> < ![endif]-->< !--[if gte mso 9]>< xml> < w:LatentStyles DefLockedState="false" DefUnhideWhenUsed="true" DefSemiHidden="true" DefQFormat="false" DefPriority="99" LatentStyleCount="276"> < w:LsdException Locked="false" Priority="0" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Normal"/> < w:LsdException Locked="false" Priority="9" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="heading 1"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 2"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 3"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 4"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 5"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 6"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 7"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 8"/> < w:LsdException Locked="false" Priority="9" QFormat="true" Name="heading 9"/> < w:LsdException Locked="false" Priority="39" Name="toc 1"/> < w:LsdException Locked="false" Priority="39" Name="toc 2"/> < w:LsdException Locked="false" Priority="39" Name="toc 3"/> < w:LsdException Locked="false" Priority="39" Name="toc 4"/> < w:LsdException Locked="false" Priority="39" Name="toc 5"/> < w:LsdException Locked="false" Priority="39" Name="toc 6"/> < w:LsdException Locked="false" Priority="39" Name="toc 7"/> < w:LsdException Locked="false" Priority="39" Name="toc 8"/> < w:LsdException Locked="false" Priority="39" Name="toc 9"/> < w:LsdException Locked="false" Priority="35" QFormat="true" Name="caption"/> < w:LsdException Locked="false" Priority="10" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Title"/> < w:LsdException Locked="false" Priority="1" Name="Default Paragraph Font"/> < w:LsdException Locked="false" Priority="11" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Subtitle"/> < w:LsdException Locked="false" Priority="22" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Strong"/> < w:LsdException Locked="false" Priority="20" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Emphasis"/> < w:LsdException Locked="false" Priority="59" SemiHidden="false" UnhideWhenUsed="false" Name="Table Grid"/> < w:LsdException Locked="false" UnhideWhenUsed="false" Name="Placeholder Text"/> < w:LsdException Locked="false" Priority="1" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="No Spacing"/> < w:LsdException Locked="false" Priority="60" SemiHidden="false" UnhideWhenUsed="false" Name="Light Shading"/> < w:LsdException Locked="false" Priority="61" SemiHidden="false" UnhideWhenUsed="false" Name="Light List"/> < w:LsdException Locked="false" Priority="62" SemiHidden="false" UnhideWhenUsed="false" Name="Light Grid"/> < w:LsdException Locked="false" Priority="63" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 1"/> < w:LsdException Locked="false" Priority="64" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 2"/> < w:LsdException Locked="false" Priority="65" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 1"/> < w:LsdException Locked="false" Priority="66" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 2"/> < w:LsdException Locked="false" Priority="67" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 1"/> < w:LsdException Locked="false" Priority="68" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 2"/> < w:LsdException Locked="false" Priority="69" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 3"/> < w:LsdException Locked="false" Priority="70" SemiHidden="false" UnhideWhenUsed="false" Name="Dark List"/> < w:LsdException Locked="false" Priority="71" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Shading"/> < w:LsdException Locked="false" Priority="72" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful List"/> < w:LsdException Locked="false" Priority="73" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Grid"/> < w:LsdException Locked="false" Priority="60" SemiHidden="false" UnhideWhenUsed="false" Name="Light Shading Accent 1"/> < w:LsdException Locked="false" Priority="61" SemiHidden="false" UnhideWhenUsed="false" Name="Light List Accent 1"/> < w:LsdException Locked="false" Priority="62" SemiHidden="false" UnhideWhenUsed="false" Name="Light Grid Accent 1"/> < w:LsdException Locked="false" Priority="63" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 1 Accent 1"/> < w:LsdException Locked="false" Priority="64" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 2 Accent 1"/> < w:LsdException Locked="false" Priority="65" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 1 Accent 1"/> < w:LsdException Locked="false" UnhideWhenUsed="false" Name="Revision"/> < w:LsdException Locked="false" Priority="34" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="List Paragraph"/> < w:LsdException Locked="false" Priority="29" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Quote"/> < w:LsdException Locked="false" Priority="30" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Intense Quote"/> < w:LsdException Locked="false" Priority="66" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 2 Accent 1"/> < w:LsdException Locked="false" Priority="67" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 1 Accent 1"/> < w:LsdException Locked="false" Priority="68" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 2 Accent 1"/> < w:LsdException Locked="false" Priority="69" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 3 Accent 1"/> < w:LsdException Locked="false" Priority="70" SemiHidden="false" UnhideWhenUsed="false" Name="Dark List Accent 1"/> < w:LsdException Locked="false" Priority="71" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Shading Accent 1"/> < w:LsdException Locked="false" Priority="72" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful List Accent 1"/> < w:LsdException Locked="false" Priority="73" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Grid Accent 1"/> < w:LsdException Locked="false" Priority="60" SemiHidden="false" UnhideWhenUsed="false" Name="Light Shading Accent 2"/> < w:LsdException Locked="false" Priority="61" SemiHidden="false" UnhideWhenUsed="false" Name="Light List Accent 2"/> < w:LsdException Locked="false" Priority="62" SemiHidden="false" UnhideWhenUsed="false" Name="Light Grid Accent 2"/> < w:LsdException Locked="false" Priority="63" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 1 Accent 2"/> < w:LsdException Locked="false" Priority="64" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 2 Accent 2"/> < w:LsdException Locked="false" Priority="65" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 1 Accent 2"/> < w:LsdException Locked="false" Priority="66" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 2 Accent 2"/> < w:LsdException Locked="false" Priority="67" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 1 Accent 2"/> < w:LsdException Locked="false" Priority="68" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 2 Accent 2"/> < w:LsdException Locked="false" Priority="69" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 3 Accent 2"/> < w:LsdException Locked="false" Priority="70" SemiHidden="false" UnhideWhenUsed="false" Name="Dark List Accent 2"/> < w:LsdException Locked="false" Priority="71" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Shading Accent 2"/> < w:LsdException Locked="false" Priority="72" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful List Accent 2"/> < w:LsdException Locked="false" Priority="73" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Grid Accent 2"/> < w:LsdException Locked="false" Priority="60" SemiHidden="false" UnhideWhenUsed="false" Name="Light Shading Accent 3"/> < w:LsdException Locked="false" Priority="61" SemiHidden="false" UnhideWhenUsed="false" Name="Light List Accent 3"/> < w:LsdException Locked="false" Priority="62" SemiHidden="false" UnhideWhenUsed="false" Name="Light Grid Accent 3"/> < w:LsdException Locked="false" Priority="63" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 1 Accent 3"/> < w:LsdException Locked="false" Priority="64" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 2 Accent 3"/> < w:LsdException Locked="false" Priority="65" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 1 Accent 3"/> < w:LsdException Locked="false" Priority="66" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 2 Accent 3"/> < w:LsdException Locked="false" Priority="67" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 1 Accent 3"/> < w:LsdException Locked="false" Priority="68" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 2 Accent 3"/> < w:LsdException Locked="false" Priority="69" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 3 Accent 3"/> < w:LsdException Locked="false" Priority="70" SemiHidden="false" UnhideWhenUsed="false" Name="Dark List Accent 3"/> < w:LsdException Locked="false" Priority="71" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Shading Accent 3"/> < w:LsdException Locked="false" Priority="72" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful List Accent 3"/> < w:LsdException Locked="false" Priority="73" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Grid Accent 3"/> < w:LsdException Locked="false" Priority="60" SemiHidden="false" UnhideWhenUsed="false" Name="Light Shading Accent 4"/> < w:LsdException Locked="false" Priority="61" SemiHidden="false" UnhideWhenUsed="false" Name="Light List Accent 4"/> < w:LsdException Locked="false" Priority="62" SemiHidden="false" UnhideWhenUsed="false" Name="Light Grid Accent 4"/> < w:LsdException Locked="false" Priority="63" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 1 Accent 4"/> < w:LsdException Locked="false" Priority="64" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 2 Accent 4"/> < w:LsdException Locked="false" Priority="65" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 1 Accent 4"/> < w:LsdException Locked="false" Priority="66" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 2 Accent 4"/> < w:LsdException Locked="false" Priority="67" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 1 Accent 4"/> < w:LsdException Locked="false" Priority="68" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 2 Accent 4"/> < w:LsdException Locked="false" Priority="69" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 3 Accent 4"/> < w:LsdException Locked="false" Priority="70" SemiHidden="false" UnhideWhenUsed="false" Name="Dark List Accent 4"/> < w:LsdException Locked="false" Priority="71" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Shading Accent 4"/> < w:LsdException Locked="false" Priority="72" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful List Accent 4"/> < w:LsdException Locked="false" Priority="73" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Grid Accent 4"/> < w:LsdException Locked="false" Priority="60" SemiHidden="false" UnhideWhenUsed="false" Name="Light Shading Accent 5"/> < w:LsdException Locked="false" Priority="61" SemiHidden="false" UnhideWhenUsed="false" Name="Light List Accent 5"/> < w:LsdException Locked="false" Priority="62" SemiHidden="false" UnhideWhenUsed="false" Name="Light Grid Accent 5"/> < w:LsdException Locked="false" Priority="63" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 1 Accent 5"/> < w:LsdException Locked="false" Priority="64" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 2 Accent 5"/> < w:LsdException Locked="false" Priority="65" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 1 Accent 5"/> < w:LsdException Locked="false" Priority="66" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 2 Accent 5"/> < w:LsdException Locked="false" Priority="67" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 1 Accent 5"/> < w:LsdException Locked="false" Priority="68" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 2 Accent 5"/> < w:LsdException Locked="false" Priority="69" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 3 Accent 5"/> < w:LsdException Locked="false" Priority="70" SemiHidden="false" UnhideWhenUsed="false" Name="Dark List Accent 5"/> < w:LsdException Locked="false" Priority="71" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Shading Accent 5"/> < w:LsdException Locked="false" Priority="72" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful List Accent 5"/> < w:LsdException Locked="false" Priority="73" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Grid Accent 5"/> < w:LsdException Locked="false" Priority="60" SemiHidden="false" UnhideWhenUsed="false" Name="Light Shading Accent 6"/> < w:LsdException Locked="false" Priority="61" SemiHidden="false" UnhideWhenUsed="false" Name="Light List Accent 6"/> < w:LsdException Locked="false" Priority="62" SemiHidden="false" UnhideWhenUsed="false" Name="Light Grid Accent 6"/> < w:LsdException Locked="false" Priority="63" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 1 Accent 6"/> < w:LsdException Locked="false" Priority="64" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Shading 2 Accent 6"/> < w:LsdException Locked="false" Priority="65" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 1 Accent 6"/> < w:LsdException Locked="false" Priority="66" SemiHidden="false" UnhideWhenUsed="false" Name="Medium List 2 Accent 6"/> < w:LsdException Locked="false" Priority="67" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 1 Accent 6"/> < w:LsdException Locked="false" Priority="68" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 2 Accent 6"/> < w:LsdException Locked="false" Priority="69" SemiHidden="false" UnhideWhenUsed="false" Name="Medium Grid 3 Accent 6"/> < w:LsdException Locked="false" Priority="70" SemiHidden="false" UnhideWhenUsed="false" Name="Dark List Accent 6"/> < w:LsdException Locked="false" Priority="71" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Shading Accent 6"/> < w:LsdException Locked="false" Priority="72" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful List Accent 6"/> < w:LsdException Locked="false" Priority="73" SemiHidden="false" UnhideWhenUsed="false" Name="Colorful Grid Accent 6"/> < w:LsdException Locked="false" Priority="19" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Subtle Emphasis"/> < w:LsdException Locked="false" Priority="21" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Intense Emphasis"/> < w:LsdException Locked="false" Priority="31" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Subtle Reference"/> < w:LsdException Locked="false" Priority="32" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Intense Reference"/> < w:LsdException Locked="false" Priority="33" SemiHidden="false" UnhideWhenUsed="false" QFormat="true" Name="Book Title"/> < w:LsdException Locked="false" Priority="37" Name="Bibliography"/> < w:LsdException Locked="false" Priority="39" QFormat="true" Name="TOC Heading"/> < ![endif]--> < !--[if gte mso 10]>< ![endif]--> < !--StartFragment--> < !--EndFragment-->

It looks like this< o:p>

I basically want to see the blue line far away from the red line. In this case it seems fairly decent. You can also generate some p-values based off the simulation data as well.

For comparison, here is a daily system that is long if the previous close was above the 200 day simple moving average. < o:p>

We can see there’s not a lot of difference between the moving average results and just entering randomly. (Note the accuracy metric has a different x-axis scale than the previous plot).< o:p>

I use a similar idea for putting risk or open trade management ideas through their paces, seeing how well they hold up when managing random entries. < o:p>

Code is up here. Thanks for reading< o:p>

To leave a comment for the author, please follow the link and comment on their blog: Shifting sands.

R-bloggers.com offers daily e-mail updates about R news and tutorials about learning R and many other topics. Click here if you're looking to post or find an R/data-science job.

Want to share your content on R-bloggers? click here if you have a blog, or here if you don't.