Backtesting the Bumblebee (Part Two)

I only broke this up into two separate blogs because if you endured the first part, you may be interested in the second part. But you also may have had enough. I know polite readers will finish what they’ve started, so I wanted to give them a logical stopping point. In this part we will continue our exploration of how Bumblebee performs on historical data. So far, we got decent results from a 10-year test window in one market. Now, we continue down the rabbit hole.

Bumblebee’s performance in crude oil over separate 2-year windows is depicted in the following spreadsheet:

I’ve highlighted in blue the pleasant surprises, and used orange to point out the not-so-good results.

Our next step is to see how Bumblebee works on different markets. There is no expectation that it will do as well or as poorly in other markets. We’d like to see it do well in at least some other markets though. The eight other markets include corn, cotton, coffee, dollar, yen, gold, S&P 500 and Ten-year note. Once again, I’ve used blue to highlight pleasant surprises and orange to highlight dubious results.

So far, we can see that coffee and S&P 500 futures didn’t do so well. They lost money. But the good news is that about 78% of the markets actually made money, though cotton and gold pulled in a meager performance of around 3% each.

Nine markets over ten years yielded 641 trades, which is statistically valid. Taking the good with the bad, the consolidated performance gave us a 23.7% annualized return. Hmmm, I do believe this system bears further investigation. Let’s get granular again and divide up these overview reports into 2-year chunks to see if they yield any more information about Bumblebee.

Here is the S&P 500. Clearly not impressive. From 1989 to 1992, this system was dismal, to be kind. The only impressive result was long trades between 1995 and 1996.

Coffee is another market that eats this system alive. Six out of 10 years were losers, some with painful drawdowns.

Before we get completely depressed, let’s admire how the system performed with 10-year notes. The periods of 1991 to 1992 and from 1995 to 1996 yielded better than 100% returns, with long and short trades taking turns in the bounty.

The Dollar also shows some nice returns with the system, including some nice 300% returns from the short side in three separate test windows.

Gold is kinda lackluster, but at least the losing windows didn’t see too large a drawdown. Nice short trade in 1995 to 1996.

As for the Corn trade, not that impressive. The big long winner in 1987 to 1988 helps keep this one above water.

The Cotton market responds very similarly to the Corn market, with lackluster results, the decent returns from 1989 to 1992 notwithstanding.

I’ve saved the best for last, but what would you expect. The system performed well in the Yen market from 1987 to 1988. Overall annualized return was 132%, which was helped mightily by a 959% return on long trades during the period. This sort of result is almost too good to be true, so we have to give it guarded respect. It’s cool to look at though, and would be even cooler if it happened again in the future.

That is a lot of data to digest. It is just a start though. Next we optimize. As the backtest was a guardian against the trade idea as whimsical fancy, the optimization process will be a guardian against the backtest being the product of pure chance.


2 Responses to “Backtesting the Bumblebee (Part Two)”

  1. Anonymous Says:

    sorry if i missed the explanation but what is your strategy?

  2. Milk Trader Says:

    Bumblebee is a trend following system that uses a moving average crossover to trigger entries and exits. As an added buffer for whipsaws, the slow moving average has a Bollinger Band wrapped around it so long trades are only entered when the fast average is above the upper Bollinger Band, and short trades vice versa. Trades are exited when the fast moving average crosses the slow moving average in the opposite direction of the initial trade. You can find the code for the system on a previous post. I'm working on getting it more organized on my blog site.

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