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Mike,
I've done a lot of WFO since TJ implemented it in AB. As I wrote in
another thread yesterday, I had to learn that not only finding the best
IS and OOS period length is a problem but also the appropriate range of
the parameters to be optimized. If the range is too large the
parameters can easily adapt to even extreme market situations and the
result for the respective IS period can be be excellent. But they will
fail to be profitable in the subsequent OOS period. This is
particularly true if the IS period is too short thus preventing
generalization. I'm now using parameter ranges that are much narrower
and modify these ranges in subsequent WFO runs very carefully. And with
this approach I'm getting much better and smoother OOS results than
ever before.
So, in a nutshell: Even with WFO and even with a simple, not at all
overly complex trading system overfitting is possible if you apply WFO
too naively.
Regards,
Thomas
> Sometimes it is not so much adaptation that is needed. But rather
> just capturing the transition of cycles.
>
> Consider a house located in a region that has warm summers and cold
> winters. The variables would be climate control (e.g. air
> conditioner/heater). The variable values will change as the seasons
> unfold. To optimize comfort, we will be using increased air
> conditioning during the summers and increased heating during the
> winters.
>
> By experimenting with OOS time periods we may be able to identify
> market cycles. If you only reoptimized your values once a year (e.g.
> set for average temperature for the year), your climate control would
> likely be generally too warm in the summers and generally too cold in
> the winters. But, if you reoptimized monthly, then you would
> gradually use increasing air conditioning leading into the summer and
> conversely gradually increase heating leading into the winter.
>
> Obviously the markets are not so perfectly cyclical as the seasons.
> But, the example illustrates the point.
>
> Mike
>
> --- In amibroker@xxxxxxxxxxxxxxx, "Ara Kaloustian" <ara1@xxx> wrote:
> > WF testing seems like a logical step to take in creating a trading
>
> system. While I am not suggesting that we don't do it, I'd like to
> clear my understanding.
>
> > It seems to me that we are looking to create a system with
>
> parameters that are valid "for all time". If a test is succesful in
> OOS period, then we can assume that we have found something that
> remains applicable for the future - at least in this one instance.
>
> > Given that the markets change all the time, the obvious conclusion
>
> for me is that we need indicators that are adaptive... and that any
> that do not adapt will simply not work in OOS.
>
> > The issue of providing feedback from equity curve seems valid and
> > it
>
> can provide a warning about system starting to not perform as
> expected ... so regardless of type of indicators used, this kind of
> feedback is good!.
>
> > The point I am making is that there has been very little said about
>
> adaptive indicators ...
>
> > maybe that is the holy grail ... and therefore untennable ...
>
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>
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