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In general I would agree with the concept that the liklihood of good
out of sample or real time system performance is indirectly
proportional to the number of parameters, but there ARE exceptions to
this general rule at least as applied to what some would term to be
expert systems. A case in point is a system I use every day and has
had for years as good out of sample, real time performance as it had
in sample. It has 27 parameters. I haven't reoptimized in at least
18 months because there was no reason to.
--- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx> wrote:
> 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 highly desirable because it resists becoming outdated as markets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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