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----- Original Message -----
From: "jtelang" <<A
href=""><FONT
size=2>jtelang@xxxxxxxxx<FONT
size=2>>
To: <<A
href=""><FONT
size=2>amibroker@xxxxxxxxxxxxxxx<FONT
size=2>>
Sent: Friday, October 17, 2003 4:53
PM
Subject: [amibroker] Re: Will systems degrade? (was
Optimization)
snip
> I have a question for proponents of back and
forward testing. Assume > that we're dealing with 3 years of data, where
we use first two years > to optimize and the third year as forward
testing period. Further > assume that you get following results ->
> 1. When optimized over first two years, both of those years show
> profit, but the third year shows loss.> 2. When optimized over
all three years, all three years show profit, > although less than that
showed by first test in first two years.> > Which set of
parameters would you use going forward in the fourth > year? Or would you
rather just dump the strategy? I personally think > that back and forward
testing makes sense ONLY if you do the latter, > but I'm not sure that's
what happens. But then... I could be wrong.
The first question is does the third
year differ from the first two. For example, do the first two years trend
up and the third down. If things are going to work OK, the two periods
should be similar. For this reason, some use bull markets to develop bull
market systems, etc., and others use a sufficiently large data set that
encompasses bull, bear, and trendless markets to develop systems. The
first approach would appear to be more aggressive, if one can always be sure
what type of market one is in. The other has a shot at producing a
robust system that rides through all types of markets. Choose your poison
since there is no absolute answer.
> > Jitu> > --- In
<FONT
size=2>amibroker@xxxxxxxxxxxxxxx, "Dave
Merrill" <<FONT
size=2>dmerrill@x...> >
wrote:> > I'm willing to do the work I think, have been trying to
already, to > the best> > of my limited understanding.>
> > > but it's the concept of what to look for and how that puzzles
me. > sometimes> > I do get nice backtest numbers, at least
moderately nice. but if I > don't> > understand why that should
be possible given what's been said about > the> > dynamics of
market evolution, why should I believe them?> > > > I keep
coming back to the same question that I'm sure you're all > sick
to> > death of, I know I am: if auto-optimization isn't very
successful, > doesn't> > that imply that past performance tells
us very little about the > future, and> > if that's the case,
how do we develop trading systems?> > > > dave> >
> > > ...frankly, it's hard to see how rational>
> > trading system design is possible in>
> > a world like this. or am I just depressed?> >
> > I like Edison's attitude when looking for the right
material to > use> > in the light bull. When yet
another "bright" idea (sorry I could > not> >
resist) failed when tested, he is reported to have said, "We are>
> making progress. We now know of 999 things that will not
work."> > After trying everything from bamboo to who knows
what, he > eventually> > found the right
material.> > > > Genius is 5% inspiration and
95% perspiration.> > > > b> >
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