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Hi Roland,
You are incorrect to think re-optimizing makes for better performance for a
number of reasons. What you really want to do is known as de-optimization.
I've posted this before, but below is the proper technique you should use.
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: Roland Beauregard <beau@xxxxxxxxxxxx>
To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
Date: Friday, August 07, 1998 10:13 AM
Subject: Optimizing
>However, I've been thinking along the same lines as John, that frequently
>re-optimized parameters logically should produce better results than any
>specific standard parameters, including Fibs. . . . and of course they do
>much better in system tests.
>
>I'd like to see more discussion on optimization. Has anyone done any
>extensive testing and validation? Is optimzation a significant factor in
>anyone's successful trading system? Is there something inherently invalid
>with optimizing?
>
>Comments anyone??
>
>Roland
>
>At 10:26 AM 8/6/98 -0400, you wrote:
>>I am not sure if "trading with the wrong parameter" is correct, as you
>>stated. My belief is that each stk has its own trading characteristics.
>>Technical analyst in nothing more than measuring supply and demand of
price.
>>
>> And my premise is that the stk characteristic will remain in tack until
it
>>changes.
>>
>>Most complete trading sysyem have two major general characteristic. One
is
>>money management (i.e when to get in, get out and double up) and two, a
>>history of win vs lost and max drawdowns. And the reason by most people
do
>>not make "much money" on system trading is not having the trust when the
>>system turns against them.
>>
>>OminTrader assumes that the stk will be generating the same charisteristic
>>and therefore the indicators can be trusted until the characteristics
>>changes. By being able to rerun the indicators against the stk on a short
>>term basis allows re-optimizations of the indicators to the new
>>characteristic of the stk.
>>
>>This is not a guarrentee system. If it was, I would not be writing the
>>E-mail, but sunning somewhere in Europe counting my winnings. But,
>>combining with MetaStk to do additional analysis is not a bad way to
predict
>>the next short turn move
>>
>>regards
>>johnnie
>>-----Original Message-----
>>From: Jan Diederik <jddehaas@xxxxxxx>
>>To: metastock@xxxxxxxxxxxxx <metastock@xxxxxxxxxxxxx>
>>Date: Thursday, August 06, 1998 8:44 AM
>>Subject: RE: Omni Trader 3.5
>>
>>
>>>> -----Original Message-----
>>>> From: owner-metastock@xxxxxxxxxxxxx
>>>> [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of John Scudiero
>>>> Sent: Thursday, August 06, 1998 1:14 AM
>>>> To: metastock@xxxxxxxxxxxxx
>>>> Subject: Re: Omni Trader 3.5
>>>>
>>>> OT is the complete opposite of a trading system methodology. It
>>>> optimizes
>>>> indicators against a data range you chose, the intent is that the
price
>>>> trend of the immediate future is the same as the existing past, thereby
>>>> giving you excellent readings based on the indicators. And so
>>>> many days in the future, you re-run the indicator test to reoptimize
>>>them.
>>>
>>>In my opinion this means that you have been trading with the wrong
>>>parameters for your indicators. Afterwards you can say which parameter
you
>>>should have taken. Pretty frustrating if you ask me ;-)
>>>
>>>Regards,
>>> Jan Diederik
>>>
>>>For the record: I never optimize; I usually take Fibonacci numbers.
>>>
>>
>>
>>
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