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This is an interesting systems as opposed to the 4% VLE system that I
posted.
This system has the potential to be curve fitted. Curve fitting is
simply changing variables in the expert equations, or adding trading
rules to a trading system to the point where the system is tuned only
for the historical data it is being tested on.
In this system you have two variables which impact the outcome. You
have the BB periods and BB std devs. Both of which can be tweaked for
one security over a specified range of historical data. BB systems
are easily over optimized.
In the 4% VlE system you have the VLE which can't be manipulated. You
have the 4% rule which can't be changed and you have a 20 dma which
is very common. The trading rules are take whichever signal comes
first. So there's only one trading rule. Once moving average, which
was not optimized (ie 20 not 22 or 36 or whatever) and you have the
4% price differential which is fixed. That makes it really hard to
curve fit it. However, it is not robust in that it only trades the
price movement of the SPY, or the market as a whole, as it was
intended.
The BB system is not robust either in that it is only applied to the
SPY. If it were applied to other markets, it would likely produce
much lower results. (Actually I did test it and it does produce lower
results as expected. Since it wasn't presented as a robust trading
system, I didn't bother sharing those results.)
To test the degree of curve fit in the BB, I did a walk-forward out-
of-sample data test and in sample test. Walk-forward tests are
difficult to do with MS because it does not have that as an optional
choice.
Here are the results.
Annual B&H Trades DrwDwn
Ten Years 18.24% 5.84% 138/206 >0.003
Seven Years 18.67% 10.42% 81/120 0.015
OutSam
Two Years 16.94% -3.62% 25/38 0.041
One Year 31.20% -27.4% 14/18 0
One Year 18.97% 27.98% 7/12 0.038
Six Months 6.65% -6.68% 5/9 0.045
Six Months 25.30% 23.00% 10/15 0.016
You have to be careful how short your walk forward periods are
because if they are too short, you'll chop off parts of the drawdowns
periods.
In addition, in almost every year tested the lossing trades, both
average and highest, were worse than the winning trades. However
because winning trades out number losing trades the system is
profitable.
The TradeStation report on the 4% VLE system is different from MS
reports. It ended its tests in 2002. As I said I didn't run it, but I
have the results. The annual rate of return was 21.7% vs about 6% for
the market. Tradestation doesn't give me the exact raito between
winners and losers but it looks like 140 or so out 207 were good
trades. In addition, the winning trades returned a much higher
percentage of profit than losses.
The 4% VLE system can't be curve fitted--at least by any conventional
means that I am aware of. I programmed it uniquely using a highlight
code which can't be used direclty in the systems tester. I am
thinking about writing an expert for it and if I do, I will try to
put it in a form that can be tested in MS. The way I want to do it is
a little tricky because I am not coding for the SPY, I will be coding
for the VLE and then transfering the entry and exit points to the
SPY. How much fun can one guy have!
Anyway, you can read the data and draw your own conclusions. If you
think that you need to do your own systems tests because you feel
more comfortable with whatever you think you're doing that other
people aren't, please do so, and then share the results. Recognize
that there probably won't be a way to reconcile the differences,and I
just can't help you with figuring out how to do your own tests. If
you don't know how to do these tests, the results probably aren't
going to be reliable anyway.
I think the BB system paired with some other non-curve fit non-
colliner indicators might work well for the SPY. That's my opinion.
JO
--- In equismetastock@xxxxxxxxxxxxxxx, "personal592002"
<personal592002@xxxx> wrote:
> For your system backtesting enjoyment:
>
> Use 6 day Bollinger Bands +/-1.6 stadard deviations on end of day
> data on SPY. Buy at open when the closing price crosses above the
> lower Bolinger Band, sell when the closing price crosses below the
> upper Bollinger Band. Trade both long and short. Very simple &
back
> tests great on the SPY. Ten year performance over 2X that of buy
and
> hold, 207 trades in ten years 140 of which were profitable....
>
> Code -
>
> Buy & Buy to cover:
>
> Cross(CLOSE, BBandBot(CLOSE, 6, SIMPLE, 1.6))
>
> Sell & Sell Short:
>
> Cross(CLOSE, BBandTop(CLOSE, 6, SIMPLE, 1.6))
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