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I'm not sure why it matters. In this theoretical scenario, assume all
3 years are of same type, whether bull, bear, or trendless (or better
yet, combination of all 3) and you are assured that the fourth year
also has same behavior. I'm sure you'll agree that even if the market
behavior is same, one could be easily trying a strategy that displays
the behavior I described (it may not be a good system, but that's not
known prior to testing it anyway).
The question is more along the lines of "should one consider the new
set of parameters that also took third year's data into account"
OR "should one strictly stick to the principle of forward testing and
dump the system (because it didn't work in the OOS period of 3rd
year)"?
Jitu
--- In amibroker@xxxxxxxxxxxxxxx, "wavemechanic" <wd78@xxxx> wrote:
>
> ----- Original Message -----
> From: "jtelang" <jtelang@xxxx>
> To: <amibroker@xxxxxxxxxxxxxxx>
> 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 amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <dmerrill@xxxx>
> > 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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