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Hi,
I've been thinking a lot lately, and here is something I would like to have your opinion on.
I've been introduced to automated systems by a trend following book which related how some trend followers built their systems in the 70s or 80s and got rich with them, and how their system did not really change all this time. They didn't change their system because they say the market does NOT change. They looked at historic market data from the 1800s and the market was as it is right now. So they say.
On the other side, lately I have been introduced to the concept of ever-changing markets and have had a hard time trying to build my system. Got a very promising start with a system getting around 15-20% average for April 2007 to April 2008 (with little drawdown, which mean that with leverage I can boost this a lot). In any variation over thousands of stocks the results were nearly all positives. But then, I tested that same system for the years 2000 to 2008, and that was disappointing. Even more disappointing from 2001 to 2003, another troubled market like the one we are in right now.
So here I am, wondering where to go from now. Aronson's excellent book talk about the importance of having a very large sample of data. But the problem is: the larger the data, the more "historic" it gets and the less it seems to work.
Is my system not working, or did the markets really change? Do I need to make it more robust (that is, it MUST make profit even from 2001 to 2003), or can I have complete faith in what happened in the last year?
All those questions... Would be nice to read what you think about this.
Louis
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