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Excuse me for interjecting, but I feel compelled to reply too. When
the market condition changes, i.e., when the mouse encounters a new
maze to navigate, it is time for re-optimization of an optimized
system. How will we know whether the market condition has changed?
It is very difficult to anticipate this change in market condition,
but it can be done using crossover of moving averages, for eg., MACD
(3,10 EMA) Zero line crossover and/or MACD (3,10 EMA) signal line (9
bar EMA) crossover for continuation of trend or breakouts and 3 bar
EMA extremes (3 over/under 10 over/under 20 EMA) for trend changes,
but since these are lagging indicators, you will most likely miss the
move and be chasing the market, trying to catch the trend, i.e, a
moving train which just might hit a wall...
rgds, Pal
--- In amibroker@xxxxxxxxxxxxxxx, "Gary A. Serkhoshian"
<serkhoshian777@xxxx> wrote:
> Fred,
>
> What would be the red flag that it is reoptimization time?
>
> Thanks,
> Gary
>
> Fred <fctonetti@xxxx> wrote:
> 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 highly desirable because it resists becoming outdated as markets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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