Different Asset Class – Same Strategy?

We are coming closer to the end of the backtesting course. If you have read so far, you might ask yourself:

Should a trading strategy work on all asset classes? Many traders reject a backtest or strategy because it doesn’t work on all stocks or all asset classes.

For example, you might have a good strategy in S&P 500, but it doesn’t work in gold, oil, silver, bonds, etc. Should you reject the strategy?

No! You should run it through incubation on S&P 500 (but not the other asset classes).

Ask yourself this: why should a strategy work on all asset classes? All assets are prone to react differently to macro news.

Likewise, stocks might be the same asset class, but the different sectors vary a lot. Should oil and gold stocks work on the same strategy as consumer staples? We don’t think so. They have all very different business models and thus move differently.

Our opinion is this:

Never reject a backtest because it doesn’t work on all stocks or assets.