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<SPAN
class=311242611-20102003>Pal, couple questions/comments.
<SPAN
class=311242611-20102003>
<SPAN
class=311242611-20102003>- are you saying that 30 "occurrences" in any system
produces 95% accuracy? 30 trades? regardless of the market or trading system
rules or time frame? what's the basis for saying this?
<SPAN
class=311242611-20102003>
<SPAN
class=311242611-20102003>- could you explain "select stable parameters with an
equity shift less than the parameter shift after equity spikes have been
eliminated"? I don't understand what you mean.
<SPAN
class=311242611-20102003>
<SPAN
class=311242611-20102003>- just fyi, your last paragraph seems to be trying to
convince me that optimizing is good, probably in response to my asking "if you
prefer not to optimize parameters, how do you set them?". I asked that only
because you said, "I prefer a system to work without optimization", which I
thought was a nice goal, but one I don't understand how to achieve. seems that
you don't actually intend to avoid optimization either, since you then discuss
how you do it.
<SPAN
class=311242611-20102003>dave
<BLOCKQUOTE
>There
is a correct method to optimize any system that is statistically valid, 30
occurrences with 95% accuracy.The key to optimization is to select
stable parameters with an equity shift less than the parameter shift after
equity spikes have been eliminated. This process creates stability for
optimal parameters shifts within the four technical market phases.
Parameter shift is always geometric, but equity shift decline relative to
unstable parameter selection is usually exponential.All systems
are optimized to some degree. As soon as a trader chooses to enter a trade
on the open as opposed to the high/low/close of day, he has made a
decision as to how a system should be traded. Does he know the
high/low/close of day entry is better than the next opening for an entry?
If not why not? A potential 28% difference in profitability exists for
channel system entries between opens and closes.The purpose of
trading is to consistently make money. This is done by having the best
information available. If a trader does not know the best entry for his
system, what is he trying to prove? That the system isn't optimized? To
lose money because a trader is ignorant of his systen's best parameters is
foolish.Regards,Pal--- In amibroker@xxxxxxxxxxxxxxx, "Dave
Merrill" <dmerrill@xxxx> wrote:> one question pal: if you
prefer not to optimize parameters, how do you set> them? or do you
have some kind of trading rules that don't have time> constants,
trigger levels, etc, that need to be set?> > dave>
> I thought I might throw in my 2 cents.>
> Vendors love optimization, because it can generate eye
popping> hypothetical profits which has no connection to
real-time trading.> > I prefer a system to work
without optimization. But if I have to do> it, I would
make sure that the optimization is robust in the> following
manner:> > 1. The sample size of data should be
large enough to represent real-> time market conditions
- bull, bear and sideways markets.> > 2. The
look-back period should be as large as possible for the
same> reasons.> > 3. The
testing of optimizable parameters should be on out of
sample> data using walk-forward analysis.>
> 4. The Central Limit Theorem says that for a sample to
assume the> characteristics of the population, the size of
sample should be> large. The minimum sample size should be
around 30. But since an> uptrend or downtrend can last for
say 50 periods, I would have a> minimum sample size of 100
periods making sure that the full market> cycle is
there (uptrend, downtrend and congestion).> > 5. The
optimizable parameters should be as few as possible and
tested> in a wide variety of markets.>
> Curve-fitting is like rolling a fair dice with 1/6
probability of> getting any number from 1 to 6, rolling it
5 times, getting #6, 4 out> of 5 times (80%) of
time.> > A lot of traders fall in the trap of
curve-fitting without being> aware of it. So when designing
a system, it is important to keep your> guard up as far
as curve-fitting is concerned.> > Regards,>
> Pal> --- In amibroker@xxxxxxxxxxxxxxx,
"Gary A. Serkhoshian"> <serkhoshian777@xxxx>
wrote:> > Fred,>
>> > Could you narrow-down your idea of a reasonable
sample size for> backtests. You've been hinting at
rather sizeable backtesting> periods, but would like to put
some numbers to it. Also wonder if> you use # of
trades as a guide versus period of time for
backtesting> period.>
>> > Thanks,> >
Gary> >> > Fred
<fctonetti@xxxx> wrote:> > There are a lot of
questions and provacative statements in your>
post,> > only one of which from my perspective needs an
answer/response.> >> > Market
behavior will continually change after that ...>
>> > Change ? from what ? into what ? I guess this is
the part I don't> > follow. To me there is
nothing new in market behavior now that> > didn't exist
last month, last year, last decade, last century, but>
> clearly those that take a short sighted view of history and
the> > market action that made up that history will
clearly never see it.> > It's a forest and trees
thing ...> >> > --- In
amibroker@xxxxxxxxxxxxxxx, "Dave Merrill"
<dmerrill@xxxx>> > wrote:> >
> I'm not trying to be argumentative, honest (:-)... I'm more
than> a> >
little> > > sick of saying the same thing over and
over, but I j u s t d o> > n '
t g> > > e t i t
.> > >> > >
------------------------------> >
>> > > I fail to see the huge difference in
principle between equity> > feedback
and> > > backtesting.> >
>> > > let's start by assuming that backtesting
performance of a system> > and
its> > > parameters over some period of past data
tells you something> about> >
its> > > future performance. it's not a perfect
predictor, but it's the> best> >
evidence> > > we have. does this seem like a
reasonable starting point? what> >
alternative> > > is there?> >
>> > > if that's true, why is it better to do it
only once? what> > justification is>
> > there for picking one examination period over another?
clearly> > market> > > behavior
will change continually after that. don't we need a
way> of> >
working> > > that looks at what's been happening and
evolves our response?> > >> >
> sounds like we examine performance up to some point and
adjust,> > trade with> > >
the best-choice system and parameters for a while, then
examine> and> >
adjust> > > again later. make sense? what alternative
is there?> > >> > > so then,
how often do we re-examine performance history? to put
it> > > differently, how long do we ignore any
changes in market dynamics> > that
may> > > or may not have occurred? why would
intermittently refusing to> look> >
and> > > respond improve system performance or
reliability?> > >> > > if
that needs to be done, why not have the system itself do
it,> as> > part
of> > > its inherent operation? why is it better for
us as an outside> agent> >
to> > > periodically run some separate tests, reach
into the internals of> > the>
> > system, and change stuff?> >
>> > > or should we just continue with the system
and parameters we> choose> > at
the> > > beginning? are they somehow more valid than
what we'd choose> later,> >
using> > > the same backtesting methods, but on a
different date range of> data?> >
>> > >
------------------------------> >
>> > > I realize that even if it seems to make
sense logically, this all> a> >
complete> > > crock if no systems put together like
this even backtest well,> > never
mind> > > forward testing.> >
>> > > but every time I think about abandoning
this line of research, it> > seems
like> > > the first thing I'd want to do with a new
system would be (let me> >
guess),> > > test and possibly adjust it using data
up to some date, then run> > with it
for> > > a while after that and see if equity growth
is good. if it is,> I'd> > want
to> > > lather, rinse and repeat with other in and
out of sample data, to> > make
sure> > > that wasn't
coincidence.> > >> > >
sounds way too familiar to be a completely different
animal.> > >> > >
dave> > > From: Fred
[mailto:fctonetti@xxxx]> > >> >
> 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.
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