003: Cesar Alvarez on trading ideas, backtesting, stops and market timing

In our chat with Cesar Alvarez we talk about trading ideas, key concepts and pitfalls of backtesting, the impact of stops on returns, market timing, over-optimisation, drawdown and using multiple strategies in a portfolio. Topics discussed:

• Where to find trading ideas
• Why you should test all of your ideas, even if you think they won't work
• Pitfalls of backtesting you need to look out for
• How to identify coding errors in backtesting
• Some clues that indicate you may have over-optimised a strategy
• Issues with splitting data into in-sample and out-of-sample portions
• The impact of stops on returns
• Handling a 50% overnight drop in a stock price
• Finding your personal drawdown tolerance
• How market timing can impact a strategy
• Why you need multiple strategies in a portfolio