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1)Use as few parameters as possible and favor systems that show greater
insensitivity to changes in parameter values.
2)Backtest over as much data as possible, but 5 years minimum is
recommended. You need a minimum 30 closed trades (buy & sells) to get
statistically valid results. Anything less over 5 years and you might as
well trade the 200 day SMA (or 233 for Fib fans!).
3)Check for dependency between trades. While rare, they can exploited.
4)Now FORWARD TEST. Divide up your data set into a minimum of 3 sections.
More is generally better, but the exact length of each section you choose is
really just a function of your system itself. Then do the following:
Optimize over section 1. Trade over section 2.
Optimize over section 1+2. Trade over 3 etc, ad infinitum.
5)Don't trade the peak parameter, but choose one that has lower performance
that the one immediately before and after it. Parameter values that are
close together tend to have similar performance (IF you followed Rule 1!).
You are better off trading the parameter whose performance will tend to go
higher than trading the peak, which tends lower. Don't fight the Second Law
of Thermodynamics aka entropy!
6) IF the system passes successfully steps 1-5 then put this now very robust
system in your toolbox and LEAVE IT ALONE. Build another system if the
"system tinkering bug" bites ya!
Hope this helps,
Rick
Tokyo, Japan
-----Original Message-----
From: rickyp <rickyp@xxxxxxxxxxxxxxx>
To: metastock-list@xxxxxxxxxxxxx <metastock-list@xxxxxxxxxxxxx>
Date: Tuesday, February 17, 1998 4:06 PM
Subject: Re: Whats Hot??????????
hello metastock list..
i would like to read opinions of what period of time you recommend to
use backtesting a system before you feel confident in using that
system.
i currently backtest my system to january of 1994, and the system has
looked good in that time frame, i don't believe there have been any
major corrections in this time frame however. (?)
i suspect one issue would be the number of trade signals issued, if in
four years it only generates one trade, even if it's profitable, that
is hardly a reliable system.
most of mine, over the four years have generated between five and
twelve trades.
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