Dynamic portfolio composition the walk forward analysis activator

This is a brand new approach. It was developed by Fabrizio Bocca and Cristiano Raco, two brilliant Italian systematic traders, and has not been disclosed so far. Let's look at an example on an intraday trading system which is put under periodic optimisation every 3-months inside a process of walk forward analysis. If during the 3 month periodic re-optimisation the system has a walk forward efficiency ratio of more than 50% then it is traded in real time and conversely if the walk forward efficiency ratio goes under 50% then the system is momentarily stopped. In this way we can decide which trading systems in our trading systems' farm are to be applied and which ones are to be suspended. Fabrizio Bocca classifies all his systems in relation to the walk forward ratio every 3 months and then he allocates his trading capital to those systems that have the highest rank.

Figure 8.3: this is an example on how Fabrizio Bocca and Cristiano Raco rank their trading systems' farm though WFA. On the right corner there is a column denominated RCD where the WFA results are condensed in a comprehensive index. If the index is positive the trading system is traded with real money, if it is negative (zero in the column) is it deactivated.

N.

Trading System

MM

P16 Months

PI 12 Months

MI 13 Years

PI Years

RCD

1

Euro Rev Br

15

0,183

8,443

12,729

10,422

9,314

2.

Open Week Bund

30

1,338

2,054

10,262

17,404

8,300

3.

Bund Kagi Daily

30

6,039

1,826

7,837

11,500

6,797

4.

Gold Kagi Daily

30/15

-1,000

2,069

6,349

11,016

5,110

5.

Euro Nightmare

15

5,951

4,314

4,135

7,210

5,067

6.

Bund Big Deep

30

4,193

6,540

3,477

2,690

4,193

7.

Dax Castle

15

0,235

1,237

3,832

9,649

3,807

8.

TBond DBZ

30

1,754

1,918

4,918

4,510

3,612

9.

Mazzle Dax

15

2,983

3,871

2,564

4,044

3,250

10.

TBond Kagi Daily

15/30

3,954

1,682

2,525

5,966

3,217

11.

Crude Oil Multi

30

0,387

-0,477

2,013

3,318

1,407

12.

Fib Castle

15

-1,000

-0,034

1,122

4,302

1,151

13.

Big Deep US

0,000

14.

Vit Daily Bond US

0,000

15.

Open Week Dax

0,000

16.

Open Week Spmib

0,000

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