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Thanks Howard. Makes sense, and seems simple to implement. With Tomasz adding MCS into AmiBroker, life will only get sweeter : )
Kind Regards,
GaryHoward Bandy <howardbandy@xxxxxxxxx> wrote:
Hi Gary –
I was thinking of looking at the recent trades in the out of sample period. We can get an idea of what the possible distribution of various metrics are by looking at the in sample results. But the out of sample results are (almost) always less profitable, have a lower ratio of wins to losses, etc than the in sample results. One technique I use is to run a quick and dirty monte carlo program I wrote in Basic that gives the likelihood of various metrics – such as the proportion of winning versus losing trades. If the out of sample results start falling in the area of the distribution that is “unlikely”, then I have a warning that the system may be broken.
Howard
-----Original Message-----From: Gary A. Serkhoshian [mailto:serkhoshian777@xxxxxxxxx] Sent: Sunday, November 09, 2003 11:33 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] On Robustness, Post #1 : TO HOWARD
Howard,
Thanks for the detailed response. Helpful as always.
Regarding your comment:
Other techniques could be comparison of various metrics of recent trades with the probabilities that those results come from a system that is healthy or broken.
Can we come to this conclusion by looking at frequency distributions of the metrics in question during the IS period?
Thanks again,
Gary
Howard Bandy <howardbandy@xxxxxxxxx> wrote:
Hi Gary –
One -- Yes, the presidential election cycle has strong biases. This year, year 3, is traditionally an up year. I mentioned the presidential cycle as an example to ward off the flames that might come from suggesting a crystal ball approach to model selection.
Two -- I have done quite a bit of research into use of analysis of the equity curve as a feedback mechanism to help determine the health of a system. Other techniques could be comparison of various metrics of recent trades with the probabilities that those results come from a system that is healthy or broken.
Three -- As I have mentioned in posts to this board and to HolyGrailSM, I believe several things are true of markets and systems. Not everyone on this list agrees with me on these points, so you’ll read some other opinions..
Entries and exits need not be symmetric. In the equity markets, drops are much steeper in slope than rises, so the parameters used to recognize them in the same number of bars are different.
A good system need not trade all, or even a large portion, of tradables well.
Markets change dramatically over time. It is very difficult to design a system that trades profitably over a long time period, particularly when the market characteristics change within that period.
Systems that once worked well, then fail, will probably not work well again.
Howard
-----Original Message-----From: Gary A. Serkhoshian [mailto:serkhoshian777@xxxxxxxxx] Sent: Wednesday, November 05, 2003 9:15 PMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] On Robustness, Post #1 : TO HOWARD
Howard,
A few questions regarding your post to Dave
< One – we design two systems, one for bullish periods, the other for bearish periods. Then we look into our crystal ball and use the system with the upward bias if we have some idea that the near future will be bullish, and use the system with the downward bias if we have some idea that the near future will be bearish. This is not wholly a dream. For example, there are strong seasonalities in the US four year presidential cycle. >
Regarding the 4-year cycle, are you specifically referring to year 3 (the year that is coming to an end) ? I've read year 3 since WWII has been profitable to the tune of 15% on avg. Any other cycles you'd suggest to follow?
< Two – we design two systems, one for bullish periods, the other for bearish periods, and include failsafe mechanisms in both. Then we trade both systems and let the system that works make money while the system that doesn’t work recognizes that it doesn’t work and stays flat. >
Which failsafe mechanisms do you prefer? I've been looking at a DD "floor" or perhaps a factor of MaxDD to turn off the system. I believe Dimitris has suggested a downslope in the 100MA of equity curve which makes sense, too.
< Three – we design a system that is profitable in both bull and bear periods. I think this is the hardest to do, since the markets act so differently that it requires additional parameters to be able to recognize the additional patterns. In my experience, systems designed to do well in both bullish and bearish periods do not do exceptionally well in either period >
What you're describing is essentially that buys and shorts can not be symmetrical. Is that right? What are the primary things that differentiate up moves from down moves that require the need for asymmetry of signals.
Thanks for the post, as this subject is scratching where I itch in my eduction of system development and optmization.
Kind Regards,
Gary
Howard Bandy <howardbandy@xxxxxxxxx> wrote:
Hi Dave –
Good posting. I’d like to comment on your last paragraph.
- if one system does better in bull years and another in bear, the one thatdoes better in reality will depend on the proportion of bull and bear yearsthat actually occur. when we weight bull, bear and sideways markets equally,are we matching their proportions in real life? what time frame would wewant to base that judgment on?
It seems there are three approaches to take.
One – we design two systems, one for bullish periods, the other for bearish periods. Then we look into our crystal ball and use the system with the upward bias if we have some idea that the near future will be bullish, and use the system with the downward bias if we have some idea that the near future will be bearish. This is not wholly a dream. For example, there are strong seasonalities in the US four year presidential cycle.
Two – we design two systems, one for bullish periods, the other for bearish periods, and include failsafe mechanisms in both. Then we trade both systems and let the system that works make money while the system that doesn’t work recognizes that it doesn’t work and stays flat.
Three – we design a system that is profitable in both bull and bear periods. I think this is the hardest to do, since the markets act so differently that it requires additional parameters to be able to recognize the additional patterns. In my experience, systems designed to do well in both bullish and bearish periods do not do exceptionally well in either period.
Howard
-----Original Message-----From: Dave Merrill [mailto:dmerrill@xxxxxxx] Sent: Monday, November 03, 2003 7:06 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] On Robustness, Post #1
some robustness issues that have been rattling around in my head over theweekend...<<<SNIP>>>
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Howard Bandy <howardbandy@xxxxxxxxx> wrote:
Hi Dave –
Good posting. I’d like to comment on your last paragraph.
- if one system does better in bull years and another in bear, the one thatdoes better in reality will depend on the proportion of bull and bear yearsthat actually occur. when we weight bull, bear and sideways markets equally,are we matching their proportions in real life? what time frame would wewant to base that judgment on?
It seems there are three approaches to take.
One – we design two systems, one for bullish periods, the other for bearish periods. Then we look into our crystal ball and use the system with the upward bias if we have some idea that the near future will be bullish, and use the system with the downward bias if we have some idea that the near future will be bearish. This is not wholly a dream. For example, there are strong seasonalities in the US four year presidential cycle.
Two – we design two systems, one for bullish periods, the other for bearish periods, and include failsafe mechanisms in both. Then we trade both systems and let the system that works make money while the system that doesn’t work recognizes that it doesn’t work and stays flat.
Three – we design a system that is profitable in both bull and bear periods. I think this is the hardest to do, since the markets act so differently that it requires additional parameters to be able to recognize the additional patterns. In my experience, systems designed to do well in both bullish and bearish periods do not do exceptionally well in either period.
Howard
-----Original Message-----From: Dave Merrill [mailto:dmerrill@xxxxxxx] Sent: Monday, November 03, 2003 7:06 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] On Robustness, Post #1
some robustness issues that have been rattling around in my head over theweekend...<<<SNIP>>>
Send BUG REPORTS to bugs@xxxxxxxxxxxxxSend SUGGESTIONS to suggest@xxxxxxxxxxxxx-----------------------------------------Post AmiQuote-related messages ONLY to: amiquote@xxxxxxxxxxxxxxx (Web page: http://groups.yahoo.com/group/amiquote/messages/)--------------------------------------------Check group FAQ at: <A
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