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Re: [amibroker] Robustness testing & Over-optimization checklist



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Group,
 
This was the Denver Trading Group presentation a 
few weeks ago.  It was given by my Fort Collins buddy:  Dave 
Chamness.  Tell me what you think.
 
Take care,
 
Steve
<BLOCKQUOTE 
>
  ----- Original Message ----- 
  <DIV 
  >From: 
  HB 
  To: <A title=amibroker@xxxxxxxxxxxxxxx 
  href="">amibroker@xxxxxxxxxxxxxxx 
  Sent: Saturday, September 27, 2003 12:28 
  PM
  Subject: Re: [amibroker] Robustness 
  testing & Over-optimization checklist
  
  Hello Dave,
   
  For #10, Kaufman is refering to the notion that 
  the majority (68%) of the range of parameters should be profitable.  In a 
  map of parameter values & associated returns, you want to see a plateau 
  instead of just spikes.  Check out the 3D optimization spreadsheet in the 
  Files section.
   
  Also, the order of parameters is crucial because 
  you should test the most importanat variables first, i.e. the ones that cause 
  the largest changes in your results.  Focus on those first and then on 
  the less important ones
   
  Yes, the book is excellent, not just for the 
  robustness section.  I haven't read his other trading system book yet 
  though so I don't know if there are similarities.
   
  HB
  <BLOCKQUOTE 
  >
    ----- Original Message ----- 
    <DIV 
    >From: 
    Dave Merrill 
    
    To: <A title=amibroker@xxxxxxxxxxxxxxx 
    href="">amibroker@xxxxxxxxxxxxxxx 
    Sent: Saturday, September 27, 2003 8:53 
    AM
    Subject: RE: [amibroker] Robustness 
    testing & Over-optimization checklist
    
    <SPAN 
    class=213014312-27092003>thanks, I think I made that original request, maybe 
    others too.
    <SPAN 
    class=213014312-27092003> 
    <SPAN 
    class=213014312-27092003>what do you make of these:
    <SPAN 
    class=213014312-27092003>g    
    gggggggggggggggggggggg
    <FONT face="Courier New" 
    color=#0000ff size=2>> 8. Will you test a full range of 
    parameters.> 9. In what order will the parameters be 
    tested?
    <SPAN 
    class=213014312-27092003>> 10. Are the parameters distributed 
    properly?
     
    <SPAN 
    class=213014312-27092003>why would you expect profitability for all 
    parameter settings? does the existence of some unprofitable settings 
    invalidate a strategy? <FONT face="Courier New" color=#0000ff 
    size=2>what difference does the order in 
    which parameters are tested make? what does #10 mean?
    <SPAN 
    class=213014312-27092003> 
    <SPAN 
    class=213014312-27092003>did you like the book overall? would you say it 
    answers the robustness question well, beyond this 
    checklist?
    <SPAN 
    class=213014312-27092003> 
    <SPAN 
    class=213014312-27092003>thanks,
    <SPAN 
    class=213014312-27092003> 
    <SPAN 
    class=213014312-27092003>dave
    <BLOCKQUOTE 
    >
      I recall someone asking about 
      over-optimization and robustness testing.  Here's an excerpt 
      from...<FONT face="Courier New" 
      color=#0000ff> 
      <SPAN 
      class=213014312-27092003> 
      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
      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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