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The 30 trades is based on the central limit theorem - after about 30
observations things settle down if the mean of random samples follows
a normal distribution. There are several assumptions in this
approach, but it should give a good idea. I'd push it up a bit, say
to 35 or 40. Also, you need to adjust for degrees of freedom if you
do any optimisation. Suppose your system is driven by 1 parameter,
then you must add this to the 30. Suppose you have a big system that
uses say 10 parametrs - then you need at least 40 trades. Especially
if the system gets bigger, it needs more trades to give any
confidence, and I will feel better if such a system produced good
results in 50 or more trades.
Another, excellent way to test is to use a hold out sample. Build the
system on a portion of the data, say an 80% sample. Then test it on
the rest and you can see if you have a winner or fools gold. The
*proper* way to do this is to segment the sample in say 10 blocks (of
10% of the data each). Now you choose randomly any 8 blocks, optimise
the parameters of the system on it, and test it on the remaining 2.
Then you choose another 8 blocks randomly, optimise the system, test
it on the remaining 2 and so on. After you've done this say 100
times, you test the results.
For this you need special software - one good example can be found at
http://weka.sf.net
In practise, just chop off the most recent 20% and you'd get a good
idea if the system will work or not.
Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder
http://www.ferra4models.com
http://fun.ferra4models.com
--- In equismetastock@xxxxxxxxxxxxxxx, "rvalue1" <rvalue1@xxxx> wrote:
> I would contend that if you generated >30 trades in the up direction
> for a sufficiently long period 2 years or so, you would have
> confidence that the system does well in the up direction. Same for
> down and catch the sideways as it transitions. Very unusual to find
> a great system up, down and sideways!! If you have one, let me know.
>
> If you are waiting for 1000 trades, you must trade very often.
>
> --- In equismetastock@xxxxxxxxxxxxxxx, "Ed Hoopes"
> <reefbreak_sd@xxxx> wrote:
> > I recently attended a lecture by Keith Fitchen, the author of
> several
> > successful trading systems most notably Aberration. He says that
> > statistics on more than 1000 trades must be compiled before the
> > results can be considered valid.
> >
> > Ed Hoopes
> >
> > --- In equismetastock@xxxxxxxxxxxxxxx, chichungchoi <no_reply@xxxx>
> wrote:
> > > Does anyone know how many trades the evaluation needs to be sound
> > > statistically?
> > > Thank you in advance
> > > Eric
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