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Are you dismissing the "anchored" walk forward technique?
By "anchored" I mean that the beginning in sample date does not
change.
d
Greetings --
I'd like to add a comment on multivalued
objective functions, particularly as they relate to Monte Carlo analysis and
walk-forward testing.
As your trading system development moves to the
stage of having a walk-forward process performed automatically, it needs to be
guided by an objective function that incorporates all of the features that are
important to you and can be expressed as a single scalar value.
As you know, the walk-forward process divides the entire time series
being used into a sequence of in-sample periods, each followed by an
out-of-sample period. A search procedure picks the single Best set
of values for the trading system's optimizable variables for a given in-sample
period, then records the results of using those values to simulate trading
over the out-of-sample period. Then it slides the starting dates for
both the in-sample period and out-of-sample period forward, usually by the
length of the out-of-sample period, and does the search over again. This
process continues until all of the data has been processed. The results
from the out-of-sample periods are concatenated together and are used to
decide whether the trading system is a good one or not.
The key point
here is this: the search procedure must make its decision on which set
of variables is Best based on a single value -- the value of the objective
function. By the time the development reaches this stage, we, as system
developers or programmers, will not have an opportunity to look down the list
of alternative trading systems to see if we would have picked one other than
the one at the top of the list. So, as we are working with multivalued
objective functions, we must incorporate them into a single-valued objective
function that fits our trading requirements or personality and that we trust
to sort the alternatives into the order we prefer.
AmiBroker has the
capability to creating custom objective functions. There is an extensive
discussion in my book about objective functions. The discussion includes
an example of using AmiBroker's custom backtester to create a single-valued
objective function by starting with a central objective function, then
applying penalties (which can be positive or negative) to it to take secondary
goals into account.
In fact, I think that objective functions are so
important that selection of the objective function should be the First step in
trading system design. If the objective function fits the trader, most
of the problems related to the difficulty of following a trading system and of
the psychology of trading disappear.
Thanks for
listening,
Howard
www.quantitativetradingsystems.com
On 17 Mar 2007 03:06:02 -0700, thomasdrewyallop <drewyallop@xxxxxxx> wrote:
Hello all,
I have been working on the MCP technique described in
Aronson's book
for some time now. I have just completed conversion of the
C++ code on
the web site to C# plus some associated utlities to massage
AB data
into the required format yet. No test yet; I will update under
this
thread.
A few words on the theoretical underpinnings. There
has been new
information since the book was published and the code
written. I
believe an update is in the works. Also you need to be
cautious when
running MCP on IS data. This is only valid under certain
conditions.
Otherwise you must run OOS. I had an email from Aronson
explaining all
this but can't find it. You might want to contact David
directly - a
good guy and willing to talk with readers.
Finally, I
would not reject walk forward. A very useful technique
despite Aronson's
reservations. Well integrated with AB too via Fred
Tonetti's IO
add-in.
Best regards,
Drew Yallop
p.s. just remebered
that there is discussion on MCP as a possible
future addition to AB. Look
in the AB suggestions section of the web site.
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