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Hi Al –
Thanks for the kind words.
It is not valid to use older data for
out-of-sample testing when the data series is a time series that changes in
response to the trading models that are trying to reduce its inefficiency by
taking trading profits from it. If the data series came from a chemical
plant, there would be no problem. If it came from growth of a biological
system, there would be little problem. But one of the reasons the
financial markets change is precisely because we learn about their
patterns. Using earlier data for out-of-sample data is like using
yesterday’s charts for trading. It is almost as bad a cheat as
looking forward to tomorrows data.
I wrote a response to Dingo’s
question about my last paragraph that should appear within a post or two of
this one.
Thanks,
Howard
-----Original Message-----
From: Al Venosa
[mailto:advenosa@xxxxxxxxxxxx]
Sent: Thursday, October 16, 2003
5:28 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: Re: [amibroker]
Optimization -- again
Very provocative post, Howard. Thank you for sharing with the group. I
have two questions:
1. You stated "...it is not valid to use older data for
out-of-sample testing than was used for in-sample development".<font
face="Courier New"> Why
is that? Why is it invalid to use, say, an OOS period of 1998-1999 when the IS
period was 2000-2002?
2. In your last paragraph, you wrote that you should not conduct
numerous tests of systems on a host of in-sample and out-of-sample periods and
then pick the best model based on your examination of the OOS periods. Why
would you be converting all those OOS data into IS results? You are only using
the OOS periods to confirm that your system behaves as its optimized parameters
say it should. You have never touched the OOS data for purposes of parameter
optimization. So, why do you say that using the OOS periods to confirm your
system performance nullifies your system?
Thanks again for stimulating thoughts.
Al Venosa
<<< SNIP >>>
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