I have realized one thing. I can show all the proof and the data, but naysayers like you who simply don’t like the 50% drawdown will always come up with some excuse as to why all backtests are wrong. Regardless, since 2008 was a sustained VIX spike the algo did fabulously well. you may not want to believe it, but that’s your choice.
I understand the fellow’s frustration but I think there is another side to the story. I don’t happen to like this particular algo he is talking about but have spent several months devising my own to trade XIV and VXX. My back testing was done by backfilling the missing ETN prices to 2004 using futures prices.
In back testing the algo produces a CAGR of 98% with a max DD of around 70%. It has a single parameter.
I have been trading the algo now for a couple of months with small capital.
Unfortunately my experience has been over many years that whatever back testing says things will turn out very differently going forward.
I fully expect XIV to go bust at some stage or at least reach the 80% drawdown at which the sponsors are entitled or obliged to shut it down. I hope that my algo will have me out before then but I am not counting on it.
I will rebalance between the algo and cash at regular intervals but of course even this will lead to ruin if the algo goes bust several times.
Our greatest physicists are unable to predict the future. Will the universe end with a bang or a whimper? We do not know. Does time even exist? We do not know.
So “as to why all backtests are wrong”: they are not “wrong” as regards what they are competent to show (the past) but it is a brave man (or a foolish one) who believes they say much, if anything, about the future.
Trading forums are populated by an odd mix of characters. There are no-hopers looking for an easy way out of their dull jobs, competent (and incompetent) statisticians and software designers, people with maths skills, people with no apparent skills, successful “traders”, unsuccessful traders. At different times I have fitted some of these categories and certainly my success has gone and come and come and gone.
There is however no certainty. And that is what almost everyone here is missing.
The biggest fools of all are those who believe otherwise.