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[EquisMetaStock Group] Re: System Tester, Number of Bars, and Trading Systems



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I like your response superfragalist.  Way to hammer it home, I agree 
100%.

Regards,
David

--- In equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxxx> 
wrote:
> 
> Your questions are typical of people who want to be traders. These 
> are the most frustrating questions there are to answer, and frankly 
> in my experience a total waste of time to answer. (Sorry boys, 
that's 
> been my experience!) 
> 
> Research done by the SEC and academics have concluded that 95% of 
all 
> traders lose money. Now why is that? Is it because they don't have 
> good systems? Or they didn't read the one right trading book? Or 
they 
> didn't ask the one key question on this site? Or maybe they're just 
> dumb. No, it's because trading is a business and 95% of the people 
> who get into any business have no idea how to run it, especially 
one 
> like this one. 
> 
> A lot of people confuse part time trading with having a hobby. When 
> you have a hobby, you aren't doing it to make money. When you start 
> trying to make money with it, it's no longer a hobby--it's a part 
> time business. 
> 
> I posted a reference to a group of articles by Charlie Wright that 
> explains very clearly how to develop a trading system, how to use 
it 
> and how to make money trading.
> 
> A total of probably 5 people bothered to read even one of the 
> articles, muchless all of them. And the 5 people who read them are 
> the very people who don't need to read them. 
> 
> Here's the reference again.
> 
> http://www.elitetrader.com/tr/index.cfm?s=17
> 
> These articles will fill you in on the fundementals of developing a 
> trading strategy for all ten of your stocks. It's a good place to 
> start. From there you only have another 100 or so books to read, 5 
> years of applying what you've learned, and a lot of tuition to 
> graduate school in trading, and then you've arrived---or you've 
lost 
> your capital and found a new hobby. 
> 
> The debates on this site are nearly worthless, just like that last 
> discussion on the number of bars to test. You have no idea if the 
> opinions being expressed are backed up by knowledge and experience, 
> or if, like most opinions, they're just hot air. No one has to post 
> their trading resumes. Just because someone is say an engineer, or 
a 
> Ph.D., or Albert Einstein that doesn't mean they know squat about 
> trading quarters with their grandmother. 
> 
> The vast majority of opinions aren't backed up by anything like 
> knowledge or experience. Opinions are cheap, success is expensive. 
> 
> People post questions pleading with someone to give them some 
little 
> piece of code. They don't have time read the manual, study the 
> formula primer or learn how to do things for themselves, because if 
> they just had this one piece of code they could make money trading, 
> and after all, that's all they want to do. Those suckers are the 
> worst of the lot. Don't be one of them. 
> 
> There is an individual trading system for every person who becomes 
a 
> successful trader. For those who survive long enough, it's arrived 
at 
> through education, trial and error, countless hours of work, and 
some 
> luck. No single trading system works for every person. You notice I 
> didn't say there is no single trading system that works for every 
> stock. The trading system is about the person using it, not the 
> symbol it's applied to. A trading system is only one part of a 
> trading strategy. Most want-ta-be's never get far enough to even 
get 
> close to having a trading strategy. 
> 
> If you read Wright's articles, you'll find out that a trading 
> strategy is not, "I'm going to trade breakouts based on the price 
of 
> spam tomorrow." Far from it. Just that one little piece of 
knowledge 
> will put you ahead of most of the pack.
> 
> Nearly everyday I talk to successful traders and systems developers 
> and some of them are doing just the opposite of what I'm doing. The 
> only thing we're both doing is making money, and have for a long 
> time. Neither of us tries to convinence the other one we're right. 
> 
> The bottom line is, whether you're trading 1 stock or 500 stocks, 
> it's a business. Learn the business. It's a brutal business. There 
> are more people selling information on how to trade successfully 
than 
> there are successful traders. That ought to give you a clue. 
> 
> Just remember, if some simple system, formula, charting technique 
or 
> whatever worked really well, everyone would be doing it, and 
they're 
> not. 
> 
> The magic is in the way the system fits you. That's it. That's the 
> secret. 
> 
> Read the articles and start learning how to tailor a suit of 
clothes 
> that fits you and you alone, not your ten stocks. 
> 
> If things don't work out, buy a copy of The Four Pillars of 
Investing 
> by William Bernstein. It's the best buy and hold book ever written. 
> 
> And please remember, if you're going to lose your money, at least 
> have some fun while you're doing it! 
> 
> 
> 
> 
> 
>  
> 
> 
> 
> 
> 
> 
> 
> 
> 
> --- In equismetastock@xxxxxxxxxxxxxxx, "metastkuser" 
> <andysmith_999@xxxx> wrote:
> > 
> > 
> > Well I had no idea my question would spur such a debate. After 
> > reading opposing viewpoints, here is what I have converged to:
> > 
> > I am trying to find the best systems with which to trade my 10 
> > favorite stocks. I have about 50 systems at my disposal. I have 
> > decided to backtest each stock (against all systems) with 5000 
> bars, 
> > 1000 bars (which excludes the dot com bubble years) and 250 bars. 
> > Then, for each security, I will choose a system that performs 
well 
> > over all three time periods. 
> > 
> > So do I have an ice cubes chance in hell?
> > 
> > 
> > 
> >  
> > 
> > --- In equismetastock@xxxxxxxxxxxxxxx, "David" <junk@xxxx> wrote:
> > > 
> > > 
> > > While I do respect your opinion on the matter that more 
> > > isn't "necessarily" better given changes in market conditions 
> from 
> > > the past.  My view lies more in the fact that if you can design 
a 
> > > system not only to perform well in past market conditions, but 
> also 
> > > in the dramatic recent changes, your system is obviously more 
> > > robust.  And I'm not talking about a system that performs well 
in 
> > the 
> > > past "on average."  I mean consistent gains yearly as much is 
> > > possible.  I would much rather have a system that performs just 
> as 
> > > well in the past as it is still doing recently, than having a 
> > system 
> > > that performs well recently but not in the past.  In that 
aspect 
> I 
> > > believe more is better.  
> > > 
> > > But maybe my motives are different.  I look for robust systems 
> that 
> > > can be applied to various securities for diversity and perform 
> > > consistently.  I'm not looking for max possibly return.  If a 
> > > businesss is to be run, you can't expect to have occasional 
> > > profitable results showing up here and there just when they 
feel 
> > like 
> > > it.  If your system can only do well in today's market but not 
a 
> > > decade old market, who's to say that history won't repeat 
itself 
> > and 
> > > the market reverts to old?  Not to say you can't adjust your 
> system 
> > > when the time comes, but you cannot pinpoint that until 
possibly 
> > > years too late.  
> > > 
> > > You said that the number of bars used has very little influence 
> on 
> > > curve fitting.  In the most ridiculous of examples, if you have 
> > only 
> > > one month of data and go test a basket of systems, you will 
> > obviously 
> > > come up with a few that bought and sold at the exactly the 
right 
> > > point.  Not necessarily because they are good systems.  So 
what's 
> > > next?  You can't have one month of data represent a whole year 
of 
> > > market movememt, it's not accurate enough of the whole.  What 
> about 
> > a 
> > > year?  That sounds like a decent amount, but it only represents 
> 10% 
> > > of a decade worth of data.  Just as a month is only roughly 10% 
> of 
> > a 
> > > years worth of data and thats not accurate enough, then how 
> should 
> > > one year be enough when it's only 10% representative of the 
> market 
> > > conditions over the past decade?  Maybe, that then lies more in 
> the 
> > > time frames you plan to choose.  If your trade time frame with 
> the 
> > > designed system is short, then superfragalist may be right, 
more 
> is 
> > > not necessarily better.  The short time frame expected to trade 
> > might 
> > > be close enough to the previous short tested time, then you 
might 
> > > make money with the system you designed for it.  But I wouldn't 
> be 
> > > willing chance my money on it.  So even aside from the possible 
> > curve 
> > > fitting issue, I still would find the lack of bars to be a 
> negative 
> > > obstacle given that your system wouldn't have had time 
to "prove" 
> > > itself in more varying market conditions.  As I said, I respect 
> > your 
> > > view superfragalist, but the aforementioned reasons is why I 
> > believe 
> > > otherwise.  But after writing this, I guess a lot boils down to 
> > > personal objectives and trading style.
> > > 
> > > Best Regards,
> > > David
> > > 
> > > --- In equismetastock@xxxxxxxxxxxxxxx, superfragalist 
> > <no_reply@xxxx> 
> > > wrote:
> > > > 
> > > > Sorry, but I don't agree with this statement. "I'm sure 
> everyone 
> > > > would more than emphatically agree with me that the more 
> > historical 
> > > > bars the better to test on."
> > > > 
> > > > While I do agree that using too little data can be a problem, 
> too 
> > > > much data is just a big an issue. Curve fit is a complex 
issue 
> > and 
> > > > the number of bars of data you use to develop your system has 
> > very 
> > > > little influence on it. 
> > > > 
> > > > I'm not going to go into a long piece on curve fit because 
> there 
> > > are 
> > > > many really good systems development books and internet 
> articles 
> > > that 
> > > > define, explain and debate the issue. 
> > > > 
> > > > Curve fit is easy to test for using out of sample data in 
walk 
> > > > forward tests. Indicators can be tested for robustness prior 
to 
> > > walk 
> > > > forward testing. 
> > > > 
> > > > Curve fit is caused by over optimization, lack of robustness 
in 
> > the 
> > > > indicators, too many variables in the optimized equation and 
> poor 
> > > > selection of variables within the equation. 
> > > > 
> > > > Not one of the systems development books that explore the 
issue 
> > of 
> > > > curve fit have a set number of bars of data that should be 
> tested 
> > > to 
> > > > reduce curve fit or to validate equations. 
> > > > 
> > > > No one says that 500 bars are too few and 2000 bars are too 
> many. 
> > > > Everyone has a different view. However, most authors and 
> systems 
> > > > develop people do agree on what causes curve fit. 
> > > > 
> > > > Robert Colby in The Encyclopedia of Technical Market 
Indicators 
> > > often 
> > > > tests using 20 to 40 years worth of data. Does that mean that 
> the 
> > > > best performing systems he has found historically will work 
> well 
> > > > today. Absolutely not. He admits that many of the 
historcially 
> > best 
> > > > performing systems have done poorly in the last few years. Is 
> it 
> > > > because of curve fit? No, it's because his historical data 
> > averages 
> > > > out all types of market cycles and the last few years have 
been 
> > > > anything but average. The point of his book is not to use 
> what's 
> > > been 
> > > > great over forty years, but to look in similar places for 
> current 
> > > > versions of the similar things that will work in these 
markets. 
> > > > 
> > > > Sorry I can't support your opinion. I've gotten a different 
> > > > perspective from studying the issue. 
> > > > 
> > > > Esignal is slowly increasing the amount of historical data 
they 
> > > > maintain because of intraday system's developers requests for 
> the 
> > > > data. However, there has been talk that the historical data 
> will 
> > > not 
> > > > be available to users of MS but only to Esignal trading 
> clients. 
> > > > Equis says this is not true, but I've seen some evidence of 
it. 
> > > > 
> > > > Historical one minute data since 1997 on the S&P 500 can be 
> > > purchased 
> > > > for about $2500 from Price-data.com. For people doing 
intraday 
> > > > trading that's reasonably priced. You can buy individual 
> symbols 
> > > for 
> > > > $75.








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