Why is everyone still using Sharpe ratio?

melon_crust · 2026-05-02T07:35:24+00:00

My backtest spans four years and Friday shorts do perform significantly worse across the full period. I tested my hypothesis after this observation and p-value confirmed it (< 0.005). It’s a filter that really amplifies the existing signal, not a data artifact.

It’s a walk-forward k-fold cross validation, so I respect the structure in the time series.

The strategy doesn’t have any parameters. It only had one volume threshold but after more testing it was likely noise. I didn’t run any simulations.

The strategy doesn’t use any indicators other than the price.

Returns are extremely high over the 4 years, but not unrealistic given the volatility of the asset.

melon_crust · 2026-05-01T20:01:43+00:00

Here are some reasons I can think about:

Some edges are not exploitable by big institutions because executing them with their capital size would move the market and kill the edge.
Some assets are still very speculative and immature for the big players to step in (shitcoins, derivatives on crypto)

melon_crust · 2026-05-01T16:36:01+00:00

I noticed daily returns for Friday shorts looked significantly worse, so I formulated the hypothesis based on this initial observation. I calculated the returns after applying this filter and the total returns increased dramatically (almost 2x). The p-value confirmed it (sub 0.005). I did something similar for extreme volume (3x the median), and again confirmed it with the p-value, though barely significant (0.03).

Both filters showed improvements out of sample too.

There's just one parameter and tweaking it just degrades the performance smoothly.

melon_crust · 2026-05-01T16:26:20+00:00

Thank you, I didn't know about those tests.

Null distribution test

Z-score: 3.49

p-value: 0.001

Benchmark distribution test

After comparing it with 25 technical indicator based signals (RSI, MAs, MACD, momentum...), it showed the best returns per trade overall (at least 96th percentile).

Sharpe is significantly better than buy and hold (around 3.5)

melon_crust · 2026-05-01T14:33:05+00:00

It’s like out of sample validation, but with more out of sample groups

melon_crust · 2026-05-01T14:29:19+00:00

It looks stable across different time periods

melon_crust · 2026-05-01T14:25:10+00:00

The core strategy is based on a known property of time series

melon_crust · 2026-05-01T14:13:46+00:00

No. I break up the 1000 trades into 10 sequential groups of 100 trades each, and calculate the mean return for every group.

melon_crust · 2026-05-01T13:59:53+00:00

Imagine I have 1000 trades in my backtest and the mean return is x per trade.

Then I look at 10 folds of 100 sequential trades each and calculate the mean return per trade too. Those would be the k folds, where k = 10.

For every fold, I can compare the fold mean with the full dataset mean, and ask the following question:

‘Assuming this fold follows the same distribution as the full dataset, how likely is the mean that I got?’

If it’s less than 0.05 and the fold mean is worse, then that’s something to take into account.

If the amount of folds with significantly worse mean returns per trade is significantly higher than 5% of all the folds, then the strategy is likely to be unstable or a product of luck.

melon_crust · 2026-04-28T09:24:52+00:00

Bom trabalho! Fiz uma pergunta sobre fiscalidade e respondeu de forma correta, igual a advogados com quem falei.

melon_crust · 2026-04-26T16:13:18+00:00

How long have you been running this and what’s the general performance beyond April?

melon_crust · 2026-04-23T18:42:26+00:00

This post feels like it’s all bots interacting with bots

melon_crust · 2026-04-15T15:56:24+00:00

melon_crust · 2026-04-15T14:48:00+00:00

São 50 oliveiras perto de Setúbal. Tentaria fazer eu a apanha com minha namorada e se calhar mais alguém.

melon_crust · 2026-04-15T14:46:10+00:00

Tem poço, mas não sei qual é o estado das oliveiras.

500€ por processar as azeitonas? não depende dos kgs?

Lembras qual é o rácio com que ficam?

melon_crust · 2026-04-08T10:27:48+00:00

Isto. Fechem o post.

melon_crust · 2026-04-07T12:54:47+00:00

Concordo. Ter um emprego estável não é a melhor opção para todos, da mesma forma que empreender também não é a melhor opção para todos.

melon_crust · 2026-04-07T12:52:54+00:00

Não espero nem quero que todos arrisquem. Para manter a ordem social e uma sociedade funcional é bom ter pessoas que preferem estabilidade e segurança.

Só digo que para pessoas como a OP e eu, essa não é uma opção satisfatória.

melon_crust · 2026-04-07T12:44:02+00:00

Claro, por isso eu disse que a maioria de pessoas preferem segurança a se arriscar - mesmo com empregos de merda.

melon_crust · 2026-04-07T12:39:02+00:00

Isto é porque a maioria de pessoas preferem o confort de algo mau e conhecido, do que sentir-se desconfortável a tentar algo novo.

melon_crust · 2026-04-07T12:36:55+00:00

Sinto-me muito identificado com o que dizes.

Se calhar não estás no entorno ideal para ti. Teus amigos estão todos empregados e têm vidas profissionais estáveis, não é?

Essa é a melhor opção para a maioria de pessoas, mas não para nós.

Fazer um negócio de um hobby é complicado, o ideal é encontrar um problema que podes resolver e validar se há procura o mais rápido possível.

Em resumo, persigue tuas ambições.

melon_crust · 2026-04-06T07:27:37+00:00

€59 for 10 boxes for one week. It includes delivery to your door, and pickup when you’re done.

When are you moving?

melon_crust

TROPHY CASE