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[amibroker] Re: Backtest using equity curve



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It actually depends on # parameters *and* # trades.  To see this in a
more quantitative light, *assuming all else is equal* think of how a
confidence interval for the average trade (in a backtest) changes when
degrees of freedom are adjusted by an increasing number of system
parameters.

--- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx> wrote:
 
> 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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