Regime focus in Backtesting - How important is it?
Hey everyone,
I'm curious what your thoughts are on how much weight you put on testing during different historical market regimes, particularly in regards to determining if a strategy has been overfit to the most recent regime.
My strategy is pretty profitable in the current regime (200%+ profitable, profit factor > 2), but it doesn't have a very high Sharpe Ratio (.6 - .8 range at best), and it definitely breaks down when I start looking at historical market regimes. I also haven't performed Monte Carlo simulations either.
I'm curious:
- How much consideration should put on Sharpe Ratio, regime testing, Monte Carlo, and walk-forward testing?
I've currently backtested for a 2 year timeframe (last regime) and forward tested for a year with decent profitability, but I'm nervous about the robustness of my strategy when I start looking into these other regimes as performance deteriorates (or goes negative).
Any thoughts or learnings are appreciated!
