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It's
quite simple, really. If you have a system that generates hundreds
or thousands of trades and you remove (say) 1% of those trades, the equity curve
is unlikely to be affected very much. As Jitu says, the equity curve
quickly "catches up". If you have a system that doesn't trade very
often and you remove 10% of the trades, the resulting equity curve could look
quite different. Also, if Murphy's Law played a hand and the trades
you removed were all profitable, the effect on the rest of the equity curve
could be significant.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: jtelang
[mailto:jtelang@xxxxxxxxx]Sent: Sunday, October 19, 2003 2:25
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: Objective
functions (was RE: [amibroker] Re: Optimization --
again)Pal,I certainly do not see (and
understand why) the results would be RADICALLY different. I tried what you
suggested, and obviously, near the start of second period, the results
were slightly different, but eventually, the system caught up, and
produced nearly identical equity curve as the first
test.Jitu--- In amibroker@xxxxxxxxxxxxxxx, "palsanand"
<palsanand@xxxx> wrote:> Hi,> > Here is an
interesting observation on system testing:> > Say you run a
system test over 10,000 bars of data, then print out a > chart of
the system's equity line. Then repeat the test, but start > 100 bars
later. Let's say two trades were included in those 100 bars, > so
they've been dropped. Now print the second equity line and compare
> it to the first. You'd get exactly the same equity line, but 100
bars > shorter. Right? Wrong! > > When I do this I
get a radically different equity line on the second > test, i.e.,
they are not near-mirror images of each other. My hunch > is that a
form of the chaotician's "butterfly-effect" has arisen: > changing any
given trade's market position (long, short, flat) will > effect in a
chain reaction all the subsequent trades in complex and > unexpected
ways. Here dropping the first two trades could very well > change the
system's market position when the third trade is > calculated, and so
on. > > I believe this observation has profound and unfortunate
implications > for the robustness of system testing. It's a second
and more subtle > problem that lies behind the mere
curve-fitting/optimization problem. > > If dropping a couple
of early trades will always effect later trades, > then there's no
truly "neutral" starting point with any test data. > Where your test
data starts determines the final test results just as > much as
your system does. > > The success or failure of many different
mechanical systems is > predicated to a surprising and varying degree
on the sequence of > events just prior to the first actual trade
generated by the system. > > The trade setup and timing of
the first trade can have a profound > effect on the subsequent trading
results. The circumstances and > timing of entry into the first trade
can sometimes make a huge > difference in the overall trading
performance. > > Regards,> > Pal> >
--- In amibroker@xxxxxxxxxxxxxxx, "Fred" <fctonetti@xxxx> wrote:>
> That IS what I was trying to say. I suspect because equity feed
> back > > is like looking in a rear view mirror, great for
letting us know > > where we were and how we could have
adjusted the past to make it > > better, but that's about it.
> > > > --- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill"
<dmerrill@xxxx> > > wrote:> > > don't think I get
what you mean here fred.> > > > > > you can't be
saying that metrics on the equity curve of a trading > >
strategy> > > or its parameters aren't useful, right? that's the
only thing we > > have to> > > judge the
effectiveness of our methods and settings.> > > > >
> so you must be saying that equity feedback isn't a useful
concept,> > > regardless of how you measure "good" equity. do
I have that right?> > > > > > if so, as I've
said, my experience agrees -- none of the > indicators > >
I've> > > tried are wonderfully profitable when auto-optimized
this way. I > > just cannot> > > for the life of me
understand why that's the case, if backtests > > tell us>
> > anything useful about future performance.> > > >
> > if I've misunderstood completely, my apoligies (:-)> >
> > > > dave> > > Like a lot of other
things that sound like they SHOULD work, I > > have> >
> never found metrics related to equity curve feedback to be of
> much> > > value in the determination of
system parameter values.> > > > > > ---
In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <dmerrill@xxxx>>
> > wrote:> > > > interesting as
usual howard (:-). one piece I wanted to drill > > into>
> > a bit.> > > >> >
> > I wonder what the effect of using performance measures
that> > > concentrate on> >
> > certain things at the expense of others actually
is.> > > >> > > > for
example, my auto-optimization stuff currently uses simple> >
> profit per bar> > > > to choose
parameter values. my gut-level assumption was that > >
since> > > it was> > > >
ignoring drawdown (among other things), the resulting systems >
> might> > > have> > >
> higher drawdown than I was comfortable with, but that profit >
per> > > bar should> > >
> be as good as the trading method could produce.> >
> >> > > > maybe that's not the
case. maybe by choosing a more balanced> > > success
metric,> > > > not only would the other factors
not considered by my > simplistic> > > first
pass> > > > metric be improved, but profitability
might be improved as > well.> > > >>
> > > is this something you've investigated or thought
about? > anyone > > else?> > >
>> > > > dave> > >
> Note ? it is perfectly valid to have different
objective> > > functions for> >
> > different purposes. For example, I might be
modeling the > > behavior> > > of a>
> > > sector, say oil services, with the intent of
trading > individual> > > stocks based>
> > > on what I learn. In this case, I want to
identify periods of> > > rising prices>
> > > with careful attention to turning points, but
without much > > interest> > > in>
> > > overall profit. On the other hand, I might be
modeling > > individual> > > high
beta> > > > tech stocks, in which case my model
includes several stop loss> > >
techniques> > > > and I care most about avoiding
drawdowns.> > > >> > >
>> > > >> > >
> Thanks,> > > >> >
> > Howard> > > > > >
> > > Yahoo!
Groups Sponsor> > > > > > > > >
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