Fake Strategy

2022년 9월 27일

THIS IS A FAKE STRATEGY. PLEASE DO NOT USE THIS FOR TRADING.

Just publishing this to display how easily you can fake backtest results in the strategies. However, there are ways to identify the scams. Let's discuss about major red herrings in a strategy. How to identify them and stay away from them.

Any strategy which proclaims significantly high win rate (such as this) are not practical and can only be achieved via following means

Significantly high risk compared to reward
Trades are set in such a way that profits are taken in small movement whereas stops are significantly farther. By doing this, win rate will surely increase. But, will be picking pennies by risking plenty of capital. General trait of such strategies can be identified by comparing average trade and max drawdown. These kind of strategies will have significantly higher drawdown even though the number of losses are less. For example, 1 losing trade leading to drawdown of 10+% whereas every winning only contributes 0.25%.

We can also see this kind of behaviour in option selling strategies such as 0 and 1 DTE option selling strategies. Here too probability of winning can be pretty high (north of 90%). But, on every winning, you make 1-2% of your capital however on remaining trades, you will lose your complete capital - which leads to overall losing position.

Inducing repainting through code
This strategy is an excellent example of how repainting can be induced via code using request.securities method. There are plenty of ways a strategy or code can be made to repaint. Tradingview user manual has lots of information about repainting. Feel free to read through if you have extra time. If you look at this code, it is very simple to induce repainting in a strategy to make it look like an infinite money printing machine.

High Leverage and lack of usage of margin
Using leverage in pine can show false results. This is because, the strategy engine will not stop when equity goes below 0% until the trade is closed. But, that does not happen in real life. This is the reason why using leverage along with high risk and low reward trades can show false results overall making it look like the strategy is unbeatable. But, when you try to use that in real time, it is likely that account will be blown out.

To understand leverage conditions, please have a look at the strategy property fields - Order Size, Pyramiding, Commission, Slippage, Margin Long/Short.

Curve fitting
If the author claims that strategy will only work on particular set of instrument and particular timeframe, then the strategy is not real. It is curve fitting. Knowingly/Unknowingly author has moulded his strategy to fit what has happened in the past. This is general issue even non malicious author go through. It is very much essential to test the strategy across various set of instruments and timeframes to understand the real capability. Use back-testing as test cases. More test cases you have, more bug free your strategy will be. There are many methods to understand curve fitting and perform better testing of the strategy in hand which can be studied and implemented by authors.

Significantly short trades - a sign of lack of strategy
A strategy built using pine in general work on close of candle. So, all the calculations generally happen upon close of the candle. You can force intra-bar calculations using bar magnifier. But, that is not equivalent to tick data. Due to this reason, I consider any trade happening within a bar (Meaning open and close within the same bar) as not reliable. This is because, it is not possible for strategy back-tester to know whether entry condition is satisfied first or exit in a completely foolproof way. Bar magnifier can help reduce this issue - but will not eradicate this problem completely. If there are lots of trades in a strategy - which are closing within the same bar, this is very likely that the strategy backtest results are not reliable.

Hope this helps at least some people to understand the scams and stay away from it.