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As far as rehashing existing trades in some supposedly statistically
significant order which are the result of already having been curve
fit verus OOS/WF testing ... Sorry ... But I could not possibly agree
with you less ...
As far as your last comment ... Market prices are definitly a noisy
data stream but they are definitely NOT about random walk ... If they
were we'd need nothing more then a newspaper and a few darts to be at
our best ...
--- In amibroker@xxxxxxxxxxxxxxx, "brian.z123" <brian.z123@xxx> wrote:
>
> Fred,
>
> I haven't studied your I/O work, or any of your other work in
detail
> as yet, but I would wager a bet that new traders could gain more
> insight into I/O by *workshopping* your stuff than they can get
from
> 90% of the books and websites etc that are out there.
> This is pretty much true of AmiBroker across the board.
>
> That's a fact that needs to be stated in my book and I am just
saying
> that for you and Tomasz so you both don't have to grapple with
modesty.
>
> *****************************************************************
> OOS/WF as a peep into the future?
>
>
> I'm sorry Fred but OOS/WF does not constitute a peep into the
future.
>
> Last night I debated with myself whether I would rebut your
arguments
> this time around or not and my conclusion was you that would not
want
> me to humour you.
>
> I will use OOS as the example, as WF is a little more complex with
> it's multiple, overlapping sample approach.
>
> OOS is just one sample, no more and no less.
> It may be the second one taken but it is still one sample and one
> sample only.
> The point is, that as a look into the future, it is the inferred
> behaviour of the (sampling distributed)population that is important
> and one OOS sample a distributed population does not make.
> I am not suggesting that we don't do it, or that I don't do it, but
> the simple fact is that it is a comfort blanket.
>
> When we look into the future we can't see a clear picture, we can
only
> see a miasma of probabilities, and we just can not accept that.
> It is foreign to our norms and we resist this by denial and looking
to
> find a real time certainty that we can hang our hats on.
>
> I say that uncertainty is quite embraceable if her features can be
> vaguely discerned.
>
> OOS is a not a peep into the future because it is a test sample
based
> on historical data and it provides only one equity curve based on
that
> past history.
> Now I don't know about you, but the positive equity curve with a
high
> growth rate is the reason I am playing this game (lucky for me it
is
> good fun at the same time).
> Now the chances of that one OOS equity curve being the exact one
> received the first time the system is traded are very slim, so why
is
> it so important?
>
> Well, it's not.
>
> If any large data sample of trades is walked through using random
> selection there is an infinite number of possible equity curves,
any
> one of which could be *the one* that the trader gets the first time
> they trade the system.
> It is these equity curves that constitute the range of all possible
> trading futures.
> Which one we are going to get we don't know and never will, but we
can
> know our chances of getting any one of them,especially the bad ones.
>
> I will warrant that traders remember their extreme losses more
vividly
> than their extreme wins.
>
> When enough trade simulations have been conducted, all the equity
> curves will fall into a recogniseable distribution; one that
> approaches a normal curve.
> Unless a trader designs a system that never loses, the equity curve
> distributions will include some minus 4 or 5 standard deviation
cases
> with a probability for each range.
> It doesn't matter if that ruinous curve has a 1/1 billion chance of
> occurring, it can still occur at anytime,even on the first trading
> excursion with the system i.e. during the OOS test.
> For that reason I say that in some cases we throw out perfectly
good
> trading systems because wild chance sometimes throws up a poor
> outcome, from a good system, during our OOS test.
> The chances of this happening in the OOS test are exactly the same
as
> happening in the first or any other real time trading scenario.
>
> If we have do one OOS test and it gets our confidence up, should we
> then do another one, and another one?
> Then we could really start trading the system with confidence>
>
> The trading commentators I have read don't offer any firm criteria
for
> deciding if a OOS test is acceptable or not.
> They generally give a wishy-washy definition e.g. *If the OOOS test
is
> within 50% of the back-test results*.
> Why 50% and what does that mean anyway?
>
> My claim is that we can be definite about it.
> If fact we can be just as definite as the margin of error provided
by
> our sampling technique and subsequent statistical evaluation.
>
> In another post I will provide a simple MCS example, that to my
mind
> demonstrates this quite clearly.
>
> Anyone still in doubt after that should wait for the *piece de
> resistance*, the Random Walk, which ties it all together
irrefutably
> for anyone who is basing their decisions on pure logic.
>
>
> BrianB2
>
>
>
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <ftonetti@> wrote:
> >
> > OOS and/or WF Testing is not a concept invented in or for IO so
that
> > particular piece of software is not really the issue per se
except
> that
> > IO has facilitated making it considerably easier to perform.
> >
> > "If one OOS test had a 50% drawdown it doesn't say that much
about
> the
> > system. It only says something about that one single OOS test of
> > however many samples."
> >
> > It doesn't ? ... It speaks volumes to me ... From my perspective,
> > decent in sample performance, whether or not one applies MCS
after
> the
> > fact, is not the end of system testing, it is only a milestone
along
> > the way to developing a system that MIGHT be tradable ...
> >
>
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