Analysis of Reddit Discussion on ADX+DMI+OBV Strategy Backtest & Sharpe Ratio Realism

This analysis is based on a Reddit discussion [0] where the original poster (OP) backtested an ADX+DMI+OBV strategy across crypto, stocks, forex, and futures. The strategy yielded +$930 profit on crypto’s 15-minute timeframe but had losses on higher timeframes. However, the claimed Sharpe ratio of 9.33 is highly unrealistic—typical ADX-based strategies have ratios between 0.6 and 0.79 [1]. HighStrike notes that Sharpe ratios above 3 are rarely persistent [2], and QuantStart emphasizes transaction costs (often omitted in backtests) are critical for realism [4].

Fourier de-noising was suggested to address OP’s noise issue in short timeframes [0]. This method is valid for stock signal processing [5], with practical tutorials from Prof Steve Brunton [3]. The reverse strategy idea could capture short trends but lacks validation [0].

1. Sharpe Ratio Discrepancy
   : The 9.33 ratio in crypto’s 15m timeframe is an outlier—ADX strategies typically have modest ratios (~0.6-0.79) [1].
2. Noise Reduction
   : Fourier de-noising directly solves OP’s short-term noise problem, with accessible resources [3,5].
3. Reverse Strategy Potential
   : Without backtesting, the reverse strategy’s profitability remains unproven but offers a direction for improvement.

• Risks
  : Overconfidence from inflated Sharpe ratio may lead to poor trading decisions [2,4].
• Opportunities
  : Fourier de-noising can enhance short-term strategy performance [5]; reverse strategy may increase profitable trades if validated [0].

OP’s ADX+DMI+OBV strategy showed mixed results, with a notable but unrealistic profit in crypto’s 15m timeframe. Critical gaps include missing backtest parameters (transaction costs, sample size) and unvalidated reverse strategy. Fourier de-noising is a actionable solution for noise reduction.