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So
Jose,
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size=2>
Going
by your comments, you seem to define optimisation as the process of introducing
a variable where you have to select a number from a range of numbers. Some
people suggest that by using price patterns instead that they aren't optimising,
but we both know this to be wrong as well. So my question is Jose, how do
you go about designing a system without using optimisation at one point or
another? And just picking a number for a variable and saying you didn't
optimise it doesn't mean that at all...it merely says you randomly chose a
number and then stuck your head in the sand hoping it would work. Your
email says to "identify a characteristic within the data".. How does one do that
without some level of data mining..i.e optimisation?
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size=2>
Bottom
line, regardless of what anyone on the planet thinks, every single model and
strategy has been optimised. And that includes buy and hold. People
have done endless research to show that buy and hold 'has' been an effective
strategy for the market as a whole. In other words they optimised the strategy
process, even though there are basically ZERO variables. Ultimately to
arrive at a model that in some way accurately reflects how the markets work
requires optimisation..end of story, and no one can prove otherwise. There
is a subtle line though between optimising and data mining. Data mining is
simply the scanning of data for patterns, random of otherwise until you find
something that happens to do well. This is highly likely to be just a
random occurrence though unless you have some way of showing it not to be
random.
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size=2>
So
back to you Jose. IF you don't do any curve fitting or optimisation, how
do you go about designing a trading model and finding a characteristic 'within
the data'?
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<FONT face=Arial color=#0000ff
size=2>Regards,
<FONT face=Arial color=#0000ff
size=2>Adrian
<BLOCKQUOTE
>
<FONT
face=Tahoma size=2>-----Original Message-----From: Jose
[mailto:josesilva22@xxxxxxxxx] Sent: Saturday, 31 July 2004 3:28
AMTo: Metastockusers@xxxxxxxxxxxxxxxSubject:
[Metastockusers] Re: Trading System
PresentationHaving coded & backtested 000's
of trading ideas for paying clients over the last five years, these are my
personal comments based on my experience:"Identify a
characteristic within the data.""Pick a trading time frame.""Test
entry ideas.""After finding a good entry, test exits.""Add filters
to improve the system performance.""Test money management
rules.""Complete out-of-sample testing."Reasonably good system
development ideas."Optimize the entry signal across as many
commodities as possible."Curve-fitting."He defines curve
fitting as either the overuse of rules, filters, or stops when developing
a trading system on a sufficient amount of past data;"Not
so.One can curve-fit system results with just one simple set of entry
& exit rules, on any amount of past data.Curve-fitting is
simply tailoring (mostly illogical) system rules to fit past
results. Often these rules manage to (mostly by coincidence) capture
one or two large price swings, enough to make a final difference to test
results."He is confident that if he can get enough trades then
total profit is the only meaningful statistic to prove that a system
works."Pfff...Buy & Hold fits this description exactly, yet
drawdowns and lack of sufficient profit generated over time make this
strategy totally unsuitable to most active traders with limited
funds.Nevertheless, perhaps Mr Fitschen's presentation is worth
listening to. Has anyone been to any?jose '-)<A
href="">http://users.bigpond.com/prominex/pegasus.htm---
In Metastockusers@xxxxxxxxxxxxxxx, "luigilms_2000"
<luigilms_2000@xxxx> wrote:> This is an announcement of a
free presentation by Keith Fitschen, > the developer of the Aberration
Trading System, in regard to > developing trading systems and the
pitfalls involved. I'm confident > that they will learn valuable
information in regard to system > development. Below are the
details:> > SATURDAY, AUGUST 7, 2004, FROM 10AM - 2PM,
DOUBLETREE HOTEL OHARE > AIRPORT, 5460 NORTH RIVER ROAD, ROSEMONT, IL.
(847)- 292-9100 > > SATURDAY, AUGUST 21, 2004, FROM 10AM – 2PM,
HYATT SAN JOSE AIRPORT> 1740 North First Street, San Jose, CA.
95112,(408)- 993-1234> > Important Seminar Information,(Note:
All pre-registered attendees > will receive a free trading system, $500
value,RSVP to > Leonard@xxxx or call 800-858-2340.>
> Trading System Development Outline> > Keith Fitschen
presents a detailed study on the theory of system > development, an
application of that theory in which he designed a > profitable system,
and an overview of his commercially available > Aberration Trading
System. Aberration is a multi-commodity trading > system that was
released in 1993. Futures Truth Magazine has twice > named it "ONE OF
THE TOP TEN TRADING SYSTEMS OF ALL TIME" (1997 and > again in 2000).
The speaker is sponsored by Angus Jackson, Inc., >
(www.angusjackson.com), a futures and commodity brokerage firm based >
out of Fort Lauderdale since the mid-1980s. Angus Jackson Inc. >
specializes in executing various mechanical trading models for its >
clients. > > > > System development, as
defined by Fitschen, is a process to identify > a means of profitably
exploiting noisy market data. Fitschen > summarized the process as a
series of steps:> > ·
Identify a characteristic within the data. > >
· Pick a trading time frame.
> > · Test entry
ideas. > > · Optimize
the entry signal across as many commodities as > possible. >
> · After finding a good
entry, test exits. > >
· Add filters to improve the system
performance. > > ·
Test money management rules. > >
· Complete out-of-sample testing.
> > > > Curve fitting. The biggest pitfall
to system development, in his > opinion, is curvefitting, which
over-optimizes past data to generate > results that can't be achieved
in real time trading. He defines > curve fitting as either the overuse
of rules, filters, or stops when > developing a trading system on a
sufficient amount of past data; or > the proper application of rules,
filters, or stops on an > insufficient amount of past data. >
> Demonstration. Turning from theory to application, Fitschen >
demonstrated the system development process. He followed the steps > he
had outlined earlier.> > > > Another
Example. Donchian breakout entries are a well-known > commodities
trading technique. This system buys on a close higher > than the
highest close in the look back period and sells on a close > lower than
the lowest close in the look back period.> > >
> Performance Metrics. The most important measure of a system to
> Fitschen is total profitability. He is confident that if he can get
> enough trades then total profit is the only meaningful statistic to
> prove that a system works. He also likes to look at the gain/pain
> ratio, which he defines as the average annual gain divided by the
> average annual drawdown.> > > >
Guidelines for Buying and Trading a Mechanical System. > >
> > Overview of Aberration Trading System. >
> > > > > Keith Fitschen has
developed commodity systems for the last 20 > years. He retired
from the Air Force in 1988, and has been trading > commodities since
then. Aberration has been marketed since 1993. > Keith has also
developed Aztec, a shorter-term commodity system, and > Imaster, a
short-term index system. Additional information about his > work can be
found at www.trade-system.com.
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