Greetings all --
There has been a lot of activity on this 
  thread.  I'll not respond to each point individually, but will make a 
  couple of general comments.
I know David Aronson, speak with him 
  regularly, and collaborate with him on projects.  I have a copy of his 
  book, "Evidence-Based Technical Analysis."  His book is excellent and I 
  highly recommend it.  I think David and I are in pretty close agreement 
  on most of the modeling, simulation, testing, and validation issues.
I 
  have spoken with Robert Pardo and have exchanged several emails and forum 
  postings with him.  I think his earlier book was very good, particularly 
  at the time it was published.  And his more recent book is not quite up 
  to those standards.  There are several important areas he did not cover 
  and several areas where I see things considerably differently than 
  Robert.
I have spoken with and exchanged emails with Van Tharp, and I 
  have copies of his books "Trade Your Way to Financial Freedom" and "Definitive 
  Guide to Position Sizing."  Both are excellent, and I recommend them both 
  highly.  Be sure to get the second edition of Trade Your Way to Financial 
  Freedom -- it has some important corrections and clarifications.
Permit 
  me a short rant on my soapbox.  I really dislike it when people claim 
  ownership of common terms.  Tom DeMark, Robert Pardo, Van Tharp, and 
  others put Service Mark symbols on terms that they think are unique to them, 
  but are not.  I appreciate Tharp's enthusiasm over what he calls System 
  Quality Number, but I wish he would not put the Service Mark symbol next to 
  every occurrence of it.  And trying to Service Mark the term Position 
  Sizing is like a dietician service marking "calorie counting."  Robert 
  Pardo claims "Walk Forward."  I used exactly that term describing exactly 
  that process in research papers I delivered at conferences in the late 
  1960s.  The mark has been registered, not by Robert, but by a company I 
  used to work for and with which Robert was not associated, over my strong 
  objection. End of rant.
System quality number is equivalent to 
  t-test.  Systems with SQNs above 2 work well for exactly the same reasons 
  that systems with t-test scores above 2 work well.  In fact, it is 
  possible to create a custom objective function that Is the t-test and use it 
  for optimization.  Attendees at my workshops in Melbourne later this 
  month will see that demonstrated.  Optimizing for the t-test of 
  expectancy is equivalent to optimizing for CAR, so don't bother creating the 
  custom function unless you have a better candidate for your objective function 
  than CAR.
Back to the topic at hand -----
There is No rule of 
  thumb to determine how long the in-sample period should be.  The Only way 
  to determine that is by testing the model and the data together.  And be 
  prepared for that length to change over time.  Some writers suggest a 
  relationship between the number of free parameters and the number of data 
  points, or some proportional division of the available data.  Those 
  techniques do work on industrial time-series data which is usually stationary, 
  but they do not work on financial time-series data which is non-stationary and 
  changes as trading systems become better at extracting inefficiencies from 
  it.
No matter how good the in-sample results look, no matter how high 
  the t-test score is, no matter how many closed trades are represented -- 
  in-sample results have no value in estimating the future performance of the 
  system.  None.  The only information you have that gives any 
  indication of future performance are the out-of-sample results from testing on 
  data that was never used at all -- not even once -- during system 
  development.
Tomorrow is out-of-sample.  The only way to prepare 
  for real-money trading tomorrow is to be rigorous during the system testing 
  and validation process.  Anything less will overestimate the probability 
  of success.
Thanks for listening,
Howard