Weekend Trader Backtest

A while ago, I asked the vendor of Weekend Trader if any backtest data were available. Initially, he send me several graphs. More recently however I received the underlying data, so I could do some more analysis. I think this can be very valuable because we can compare the backtest results with the hypothetical C2 results and see if there's any evidence of massive overoptimization in the backtest (note the emphasis of massive; I think a little overoptimization is unavoidable and not a problem).

The figure below shows the hypothetical equity curve starting on 10/26/1999, which is the beginning of the backtest. After 1,508 trading days, the curve is no longer based on the backtested returns, but instead on the hypothetical C2 returns (starting October 24, 2005); the border between these different periods is marked by the dotted line. I have scaled the equity to an index, starting at 100; and included the S&P500 returns over the same period, also indexed at 100. The y-axis has a log-scale, which means that if the daily return percentage would be constant, the equity curve would follow a straight line.



Visual inspection seems to suggest that until so far the C2 results don't deviate much from the backtest. In fact, the first 250 days of the C2 history look very similar to the last 250 days of the backtest period, in terms of the slope of the curve. I will compare some other aspects (drawdowns, alpha, beta, sharpe etc.) in subsequent posts.