The Backtest Autopsy

💡 TL;DR / Summary - Nasdaq-Corn Hedging Timing Empirical Key Takeaways (BLUF) 5-Day Lagged Transmission: Volatility shocks in the Nasdaq-100 (NDX) do not immediately propagate to grain markets, but transmit with a precise 5 business day latency. Strong Inverse Correlation: At the 5-day lag, the two markets synchronize with a significant negative correlation coefficient of r=-0.6355. Quantitative Hedging entry: Crossing the 25.33 VXN threshold acts as a quantitative signal to switch equity portfolio downside exposure to agricultural futures at the 5-day lag. How Long Is the Lag for Commodity (Agricultural) Markets to Respond After a Nasdaq Crash? Unlike traditional macroeconomic models, the process of tech volatility shocks propagating to commodity markets is characterized by a deterministic time lag. Dynamic Time Warping (DTW) calculations reveal that ZC Corn futures volatility synchronizes in the opposite direction precisely 5 business days after the VXN index crosses the 25.33 threshold. This lag represents the physical processing window required for hedge funds and commercial traders (COT) to reallocate capital and adjust their agricultural derivatives positions following the initial equity market shock. ...

💡 TL;DR / Summary - Entry Price Edge Empirical Key Takeaways (BLUF) Entry Location Governs Edge: Keeping all other parameters frozen, shifting the limit entry order from the projected pivot to the zone center caused the expected value to crash from +0.875R to +0.046R—a 19x collapse. Selection Bias Paradox: Deeper entries (zone center) do not buy cheaper; instead, they fail to fill on winning trades that reverse shallowly, selectively filling only failed, structure-breaking losing trades. Empirical Verification: We quantified this structural phenomenon across a massive dataset of 11,149 actual reversals, establishing entry price as the dominant driver of systematic edge. I changed one thing in a backtest. Not the strategy logic. Not the stop-loss, not the take-profit, not the position sizing, not the exit rules. Everything most traders call “the strategy” stayed frozen. ...