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Steve,
I don't use this Aberration system, so I can't comment on it. I do
know that Futures Truth tests a lot of systems which are essentially
curve-fitted...
I compare all systems with my primary trading system which works for
all markets (Stocks, Futures and FOREX) and has been in R&D for over
45 years. It is also the most accurate T-Bond trading system ever
developed... I have collected/developed over 140 systems but I'm yet
to find another system other than my primary trading system with
which I can trade with absolute confidence and even convert my losing
positions into profit... The rest of the 139 or so systems have been
reduced to simple verification systems....
George Patton once said that a Warriors greatest asset is his self-
confidence...
Regards,
Pal
--- In amibroker@xxxxxxxxxxxxxxx, "CedarCreekTrading" <kernish@xxxx>
wrote:
> Pal,
>
> For a system to be valid, it must work on all numbers tested, not
just those with certain names and not others
> with different names.
>
> Try telling Keith Fitchen that (the author of Aberration, the most
successful mechanical system ever sold ... check out Futures Truth).
First, Keith will tell you that his wildly successful approach DOES
NOT work on equities. Second, Keith will tell you that he only
trades a basket of six commodities. I believe both these principles
are directly contrary to your opinions about optimizing and the
selection of issues to be traded.
>
> If a system works on Bonds and not on Beans, this system is curve
fitted over a specific set of data (Bonds) and it loses all
statistical validity.
>
> Wrong, wrong, wrong. If I have an approach that has worked on
Bonds for ten years and it doesn't work on beans...BFD. Should I
abandon a robust approach to trading Bonds...because I can't
make "beans" on Beans?
>
> Beware of drinking other people's bath water and whatever you do,
don't drink the Kool Aid .
>
> Take care,
>
> Steve
>
>
> ----- Original Message -----
> From: palsanand
> To: amibroker@xxxxxxxxxxxxxxx
> Sent: Monday, October 20, 2003 9:43 AM
> Subject: Objective functions (was RE: [amibroker] Re:
Optimization -- again)
>
>
> Hi,
>
> In my mind, curve fitting means either using different systems
for
> different markets, or using different parameters of the same
system
> for different markets, and this is not valid technical analysis.
>
> Historical testing via computer means feeding a set of numbers
(open,
> ow, close prices), and receiving back an output set of rules that
> hopefully will make money trading. The numbers themselves do not
have
> names, and the computer doesn't recognize the difference
> between 'Beans' or 'Bonds'. For a system to be valid, it must
work on
> all numbers tested, not just those with certain names and not
others
> with different names.
>
> If a system works on Bonds and not on Beans, this system is curve
> fitted over a specific set of data (Bonds) and it loses all
> statistical validity. To believe it will work in the future as it
has
> worked in the past is very dangerous.
>
> Also, different markets do not have different personalities.
Again,
> they are reduced to just being a set of numbers or a bunch of
> algorithms. If a channel breakout (or any other) method is
> successful, then the same parameter must be used for all the
markets,
> for the same reasons as above. You cannot use a 20-day channel in
> Silver and a 40-day channel in Corn, this also falls under the
crime
> of curve fitting.
>
> I therefore take exception to any system, that either only trades
one
> specific market or group of markets, or trades different markets
> using different parameters or rules of the same system. All this
> proves is what has worked best in the past, and this will usually
not
> continue to work in the future, as there is no correlation under
this
> scenario.
>
> This is not specifically written to condemn vendors. This is a
> clarification of my definitions of 'optimizing' and 'curve
fitting',
> and a warning as to what types of trading systems may be valid
and
> what to stay away from.
>
> Regards,
>
> Pal
> --- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <dmerrill@xxxx>
> wrote:
> > thanks, I'll check it out if I can find it.
> >
> > I'm sure I'm ignorant, but how logic or sound trading
principles
> can be used
> > to set an MA period (for instance) without examination of past
> history
> > escapes me. as does the distinction between using past history
or
> > 'experience' to do that and optimization. as does the
justification
> for
> > seeing optimizations from one point in time as somehow blessed
> above all
> > others.
> >
> > dave
> > I would have to refer you to an article published by Futures
> Magazine
> > concerning optimization and its research value in November
20?? by
> > Kent Calhoun.
> >
> > Possibly the only way to do it correctly, is to first arrive
at a
> set
> > of parameters and algorithm based on logic, experience, or
sound
> > trading principals that won't be subject to change. Then do a
walk
> > forward with no attempt to improve results via optimization.
> >
> > Regards,
> >
> > Pal
> >
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill"
<dmerrill@xxxx>
> > wrote:
> > > Pal, couple questions/comments.
> > >
> > > - 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?
> > >
> > > - 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.
> > >
> > > - 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.
> > >
> > > dave
> > > 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@x...]
> > > > > >
> > > > > > 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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