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Roland,
A book by Robert Pardo titled "Design, Testing and optimization of Trading
Systems" (1992) addresses many of the points that Rick made in his post. The
book is published by Wiley and I thought it was well done. I believe I
ordered it from either Amazon or from Wiley directly.
Dan
Pocatello, ID USA
In a message dated 98-08-07 01:14:33 EDT, you write:
<< Rick:
Firstly, thanks for your contribution to this thread. I've been trading
full-time privately for a few years now and still over half of my time is
spent learning and testing.
Elaboration on a couple of points would be helpful, when you have a moment.
At 11:27 AM 8/7/98 +0900, you wrote:
>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.
I assume this means a max of two or three optimized parameters.
Insensitivity?? I have found that the range of results is very wide
ie:highly sensitive. Most of the parameters in a test will exhaust capital
long before current end data are reached. However, frequently a small
percentage of the parameters will produce returns in the hundreds of percent
per year and higher.
>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!).
No problem.
>3)Check for dependency between trades. While rare, they can exploited.
What is " . . .dependency between trades"?
>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.
How this done??
>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!
Not sure I understand why you wouldn't use the hishest performing
combination of parameters and fine-tune [re-optimize] every other week or
month to align the parameters with the evolving price and volume
characteristics of the particular security.
>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!
Agreed!! Thanks again,
Roland
>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
>> >>
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