Desire To Trade Podcast | Forex Trading & Interviews with Highly Successful Traders

455: The Reality Of Trading Fully Automated Systems - Kevin Davey

14 snips
May 20, 2024
Guest
Kevin Davey
Kevin Davey, experienced algorithmic trader and system developer, shares his reality of fully automated trading. He discusses why testing across markets and accounting for trading costs matters. He explains robustness checks, the emotional side of running algos, and AI’s current limits in creating reliable strategies.
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INSIGHT

Trading Costs Often Destroy Backtest Profits

  • Trading costs (spreads, slippage, commissions) turn many backtested winners into losers when included.
  • Kevin Davey showed moving average crossovers often appear profitable without costs but mostly fail once realistic costs are applied.
INSIGHT

Most Algos Are Market Specific

  • Strategies rarely generalize across many markets or bar sizes; most work only on a few specific market/size combinations.
  • Kevin tests ideas broadly but usually keeps a system live only in the single market where it proves robust.
ADVICE

Validate Algos With Walk Forward And Monte Carlo

  • Use walk-forward optimization, Monte Carlo tests, and stress checks like removing top trades to vet strategies.
  • Kevin requires pass/fail criteria at each test and discards systems that fail any of them.
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