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Pal,
Since it would appear, please correct me if I'm wrong, that the
system you keep refering to is one that is commercially available, I
can understand why you won't/can't supply the details of it, but can
you tell us whose system it is and where it's being marketed ? URL
etc.
Thanks, Fred
--- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx> wrote:
> Hi All,
>
> Although I have never personally worked with any of the systems
> covered by Futures Truth, I have no doubt that they are all curve-
> fitted. Any 'system' that purports to specialize in one market is
> optimized for that particular set of data.
>
> Some people will say that different markets have individual
> characteristics or personalities. This may be true to a limited
> extent. However, in testing, a computer doesn't 'know' what market
it
> is examining. All the computer knows is a bunch of numbers (highs,
> lows, closes), from which it attempts to produce an algorithm to
> explain or predict price behavior.
>
> For a system to be valid, it should work over a given set of
numbers
> (data). Whether those numbers have a name such as 'Beans"
or 'Bonds"
> is (and should be) irrelevant to the data and to the testing
program.
>
> Lots of systems make money when they trend and lose money when they
> don't. This is not surprising. The best that you can hope for is
to
> create a system that is profitable over time over a wide range of
> markets. Systems such as the Turtles use, makes money when the
> markets trend and loses money when they don't (no surprise).
>
> Since trendiness is a proven characteristic of commodity markets,
> given a long enough sample period (i.e. ten years) almost all the
> markets yield positive results.
>
> However, in any given year, since there are only a few good trends,
> most of the markets will prove unprofitable. This is not a reason
to
> abandon the system, or to eliminate (temporarily) unprofitable
> markets from the portfolio. In fact, the markets that have lost the
> most money recently (due to being in a consolidation) will probably
> be the best in the future (when they finally hit a trend).
>
> Finally, If one could learn to tell when the markets will trend and
> when they will be in a trading range, they wouldn't need to know
much
> else to make money. One can visually eyeball a chart and tell if
it's
> in a trend or consolidation, but that still doesn't tell one much
> about the future.
>
> Regards,
>
> Pal
> --- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx>
wrote:
> > 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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