Automated trading systems' evaluation using d-Backtest PS method and WM ranking in financial markets

Abstract

Given the popularity and propagation of automated trading systems in financial markets among institutional and individual traders in recent decades, this work attempts to compare and evaluate such ten systems based on different popular technical indicators in combination - for the first time - with the d-Backtest PS method for parameter selection. The systems use the technical indicators of Moving Averages (MA), Average Directional Index (ADX), Ichimoku Kinko Hyo, Moving Average Convergence/Divergence (MACD), Parabolic Stop and Reverse (SAR), Pivot, Turtle and Bollinger Bands (BB), and are enhanced by Stop Loss Strategies based on the Average True Range (ATR) indicator. Improvements in the speed of the back-testing computations used by the d-Backtest PS method over weekly intervals allowed examining all systems on a 3.5 years trading period for 7 assets in financial markets, namely EUR/USD, GBP/USD, USD/JPY, USD/CHF, XAU/USD, WTI, and BTC/USD. To evaluate the systems more holistically, a weighted metric is introduced and examined, which, apart from profit, takes into account more factors after normalization like the Sharpe Ratio, the Maximum Drawdown and the Expected Payoff, as well as a newly introduced Extended Profit Margin factor. Among the automated systems examined and evaluated using the weighted metric, the Adaptive Double Moving Average (Ad2MA) system stands out, followed by the Adaptive Pivot (AdPivot), and the Adaptive Average Directional Index (AdADX) systems.