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My primary trading system is very simple in the sense that it has
only one parameter (the lookback MA period), and it generally leads
to a robust system. It is objective (non-optimized and parameters
are never subject to change) and unique in the sense it is both trend-
following (continuation of a previous trend or breakout) and counter-
trend following (start of a new trend) at the same-time. The trend
and counter-trend following features of the MA based systems are
highly desirable because it resists becoming outdated as markets
change character (personality). Independent of the fundamentals
driving the market, these features are designed to capture extended
runs in both bullish and bearish directions. The Verification and
Interpretation of the signals Detected by this system was a great
challenge, but I was able to use good filters (OB/OS) and use
Volatility (non-trend component of a signal) to optimize my entry
points. A robust system can be categorized as one that stands a good
chance (probability) of working in the future as it has worked in the
past, i.e, it is tough (able to handle all markets and conditions
regardless of size and nature) and long-lasting (durable).
As discussed in a recent STOCKS & COMMODITIES article by Jeffrey Owen
Katz and Donna McCormick, a rule of thumb in evaluating trading
systems is that the more parameters a system has, the less robust the
system is. Taken to the extreme, many fitting parameters can be used
to curve-fit past data to eliminate all whipsaws while maintaining
good performance. The potential of such a system working in the real
world is nil...
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <dmerrill@xxxx>
wrote:
> agreed. if the fact that a trading system did well in the past has
no
> bearing whatsoever on whether it does well in the future, how can
we know
> anything at all about the future performance of a proposed trading
system?
>
> dave
>
> The gambler”Ēs fallacy is a fallacy because the gambler ignores
the
> independence of the outcomes and looks for patterns that do not
exist. If
> we have designed trading systems based on recognition of patterns
that
> precede profitable trading opportunities, and if those patterns are
> persistent, then we no longer have random, independent outcomes.
Our
> trading systems do have serial dependencies and upward sloping
equity
> curves. So analysis of the equity curve provides an indication of
the
> health of the trading system.
>
>
>
> Howard
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