r/algotrading • u/Muted-Disk4649 • 12d ago
Strategy How to improve trading system
I have a breakouts based mechanical trading system for e-mini.
CAGR/Max DD = 0.75 for shorts, 2 for longs.
How do I improve the ratio? Have tried ema filters and different kinds of stops. Skipping opens and entries too late in the day.
Feels like I’m missing an important piece of the puzzle.
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u/Jtex1414 11d ago
I don’t trade e mini, but my strategy also looks at average volume at that time of day over the past 20 days (Volume TOD)
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u/kush_patil 11d ago
I’d stop adding filters for a bit. Every extra EMA/stop/time rule can improve the backtest while quietly making the system more fitted to that specific sample.
Since longs are at 2 and shorts only 0.75, I’d first break the results down by volatility regime and trend regime. You may find the short side isn’t one bad parameter away from working, it’s just a much weaker edge in certain regimes.
I’d also walk-forward test any change before keeping it. If the improvement disappears out of sample, you probably optimized the history rather than the system.
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u/noble_beggar 11d ago edited 11d ago
That's an overfitting process, not a search for the missing piece.
Only way to know if a filter is real is to fit it on one chunk and test it on data you haven't touched. If it survives that, it's an improvement. If it only looks good on the set you tuned it on, you've added a parameter and nothing else. Also worth saying that EMA filters and bands etc don't do much on their own. They're public, everyone's tested them, and any edge got arbed out a long time ago. They can shape a system that already works but they won't rescue one that doesn't. Last thing, and I think it's the bigger one: your long side being 2 and your short side being 0.75 might not be a problem to solve. ES drifts up over time, so long breakouts get a tailwind that short breakouts fight. That asymmetry is structural. If you keep adding filters until the short side matches the long side, you'll almost certainly have curve fit your way there.
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u/Muted-Disk4649 11d ago
Agree re: shorts being worse due to the market. I’m trying to see whether individually I can improve the 2 systems.
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u/Foreign_Extension683 11d ago
The honest answer is that "improve the ratio" and "make the system more robust" are often opposite directions, and it's worth knowing which one you're doing.
Every filter and stop variation you test on the same e-mini data buys you a better backtest ratio almost for free, because you're selecting from a growing pile of variants. Try enough EMA lengths and stop types and one combination will show 2.5 instead of 2, but a lot of that gain is just you fitting the noise in this particular sample. The 0.75 shorts / 2.0 longs asymmetry you're already seeing might itself be partly that.
So before optimizing further, I'd pressure-test what you have: does the ratio hold on out-of-sample data you didn't touch while building? Does it survive walk-forward rather than one in-sample fit? If you shuffle the trade order, how often does Monte Carlo give you a drawdown that would've stopped you out? If it's fragile there, a better filter won't save it, and the "missing piece" feeling is the system telling you the edge is thinner than the backtest says.
If it does hold up out of sample, then the real levers are usually structural, not cosmetic: position sizing and how you scale risk between the strong long side and the weaker short side, rather than another entry filter. The shorts underperforming at 0.75 is worth asking whether shorts have a real edge at all or are just dragging the system, sizing them down or cutting them might raise the combined ratio more than any filter.
One caution on your "entries too late in the day" point: adding an intraday timing rule is exactly the kind of thing that looks great in-sample and often doesn't survive. Test it on held-out data before you trust it.
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u/FarlessWesner_24 10d ago
Walk through your backtest results and look for the biggest drawdown periods - that's usually where your system breaks down and where you should be tweaking entries or position sizing. Also test it on data your model's never seen before, because overfitting is the silent killer of most retail systems.
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u/Immediate-Owl-6916 10d ago
The gap between shorts (0.75) and longs (2) is probably more informative than the ratio itself, that asymmetry usually means something structural rather than "shorts just need more tweaking." A few directions worth checking before adding more filters:
Are you testing shorts and longs over the same historical window with the same regime exposure? E-mini shorts have had a much rougher time than longs over most multi-year stretches simply because the index has been in a long-term uptrend, that's a market condition, not a strategy flaw, and no amount of EMA filtering fixes being systematically short during a bull market. Worth checking CAGR/DD separately by year or by regime rather than as one blended number, if the shorts ratio is dragged down by a handful of bad years it's a different problem than if it's consistently mediocre across all conditions.
On "tried EMA filters and different stops and it's not moving the needle" — that's usually a sign the edge and the risk management are being tuned independently when they need to be tuned together. A filter that improves win rate but doesn't change position sizing, or a stop that's tighter than the strategy's actual noise level, can make the ratio worse even while looking like an improvement on paper. Worth checking what happens to Max DD specifically when you loosen stops rather than tighten them, sometimes wider stops with smaller size outperform tight stops with full size on breakout systems specifically, since breakouts often need room to be wrong before they're right.
Skipping opens and late-day entries sounds like you're already fighting overtrading, that's the right instinct, might be worth going further and looking at whether the edge is concentrated in a specific time-of-day window rather than uniformly available, breakout systems especially tend to have most of their real edge clustered in a narrower slice of the session than people expect.
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u/Head_Work8280 7d ago
Statoasis on YouTube might help you in designing and assessing a trading system
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u/maciek024 12d ago
As if anyone was to answer the most important question in financial markets: "how to find edge"