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Hello,
I recall someone asking about over-optimization and
robustness testing. Here's an excerpt from...
Book: "Smarter Trading: Improving Performance in
Changing Markets"
Chapter: Making a Strategy
RobustAuthor: Perry Kaufman
CHECKLIST FOR ROBUST TESTING
PART 1: Deciding What to Test<FONT
face=Arial size=2>
1. Is the strategy logical?2. Can you program all the rules?3.
Does the strategy make sense only under certain conditions?4. Take a guess
as to the expected results.
PART 2: Deciding How to Test
5. Choose the testing tools and method.6. Do you have enough of the
"right" data?7. Have you Included realistic transaction costs?8. Will
you test a full range of parameters.9. In what order will the parameters be
tested?
10. Are the parameters distributed properly?11. Have you defined the
evaluation criteria?12. How will the output be presented?
PART 3: Evaluating the Results
13. Are the calculations correct?14. Were there enough trades to be
"significant?"15. Does the trading system produce profits for most
combinations of parameters?16. Did logic changes Improve overall test
performance?17. How did it perform on out-of-sample data?
PART 4: Choosing the Specific Parameters to Trade
18. Did the last test include the most recent data?19. Did you choose
from an area of broad success?20. Are profits distributed relatively evenly
over the tested history?21. Are the profits per trade large enough to absorb
errors?22. Did the historic results show any large losses due to price
shocks?23. Have you risk-adjusted the returns to your acceptable
PART 5: Trading and Monitoring Performance
24. Are you following the same rules that were tested?25. Are you
trading the same data that was tested?26. Are you monitoring the difference
between the system's actual entries & exits?
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