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Here's the uncooked and unseasoned stew of things to consider (and
understand) when optimizing. May or may not apply to your type of system.
- Optimizing rules vary for different types of trading systems
- The system works on only one stock
- The gains are erratic with a final big gain
- Optimization values are scattered (random peaks on a 3D chart)
- The gains are too good to be true (1000,000,000%)
- If you think you found the HG think again
- The equity line is straight, almost no drawdowns
- The system only works in recent years
- The system doesn't work out-of-sample
- Optimizing parameters vary widely for different time periods
- Greater than 75% winning trades
- DrawDowns greater than 50% for the bare-bone system
- The system was tested on only one period
- Less than 30 trades
- No out of sample test (can be done backwards)
- Remember that the market has natural Friendly and UnFriendly periods that
you can detect by overlaying the equities for as many systems as you can
muster, if all equities start to dip, the market is becoming unfriendly.
- Consider using the C-Test by William Eckhardt [ See Stocks & Commodities
V. 12:5 (218-221): The c-Test by William Eckhardt.]
- Consider the type of parameter you are optimizing.
- Do check out opt values outside of the expected range, there might be
surprises out there.
- Consider that some parameters interact and others do not.
- Consider one-by-one optimization and on-shot deals, perhaps try both?
- When incrementally optimizing parameters note that the requirement for its
frequency is the same as for trades, if you add a new rule and it kicks-in
only once in ten years that doesn't mean much, even if your gain triples.
- To compare the effect of incremental system optimizations overlay the
equity curve for each stage of the system (log scale). If equities track in
parallel your enhancement may be insignificant. If the equity curves
separate at an upward angle, this means the improvement takes place
gradually, this is more significant.
- To analyze the effect of optimizations you can also plot the Buy/Sell
signals for the various stages to see where and how differences occur.
- Chart each and every parameter.
- ...
best regards,
Herman.
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