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----- Original Message -----
From: "mgf_za_1999" <no_reply@xxxxxxxxxxxxxxx>
To: <equismetastock@xxxxxxxxxxxxxxx>
Sent: Monday, September 05, 2005 4:31 PM
Subject: [EquisMetaStock Group] Re: How many trades does the evaluation need
to be sound statistically?
> If your system trades 9 times in 20 years, either give the money to
> some index manager, or put it in the bank. You are not trading, you
> are buying and holding or investing. If you add any conceivable
> gearing then either you will run out of margin, or pay through your
> ears in carry over the 20 years with just 9 trades.
>
> Anyhow, 9 trades in 20 years sounds academic to me - 30 trades plus
> degrees of freedom sounds practical to me.
>
> I do use such long term, 9-trades-in-20-years systems to extract the
> long term trend from a ticker. But I do not use that as a trading
> decision - just as part of the input.
>
> Yes I agree with you, trading is not investing. But I certainly don't
> think trading is gambling. It is gambling if you don't know what you
> are doing, probably with much worse odds than you'd get in a gambling
> house. Trading is buying and selling of financial instruments with a
> view to making a speculative profit while gambling is statistical and,
> given the odds, a sin!
>
> Regards
> MG Ferreira
> TsaTsa EOD Programmer and trading model builder
> http://www.ferra4models.com
> http://fun.ferra4models.com
>
> --- In equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxxx>
> wrote:
>> Your premise is from a purely mathematical view, specifically
>> statistical. However, the market doesn't always supply data in a
>> complete packages ready for statistical testing and inference.
>>
>> Suppose we have a market timing system that has made only 9 trades in
>> the last 20 years and all of the trades have been highly profitable.
>> Do we use the system or not? There are not enough trades to validate
>> the results.
>>
>> We can wait another 40 years or so and we'll probably have enough data
>> and enough trades to make statistically meaningful inferences.
>>
>> None of this is neat, precise or absolute. And there are no hard and
>> fast rules for how many trades a system needs to give good test
>> results. There are approaches which are better than others like this
>> one by MG, but there is no one correct answer to the question.
>>
>> After many millions of systems tests and a lot of trading years in the
>> markets, no one has come with a trading system, a timing system or any
>> other system that works consistently over long periods of market
> history.
>>
>> Trading is not investing, it's gambling with an edge to the player if
>> the player is an expert at that game. However, the house is always
>> changing a little something here or there that changes the
>> probabilities of events just enough to change the game. It's the
>> players job to stay up with these changes and adapt well enough to
>> keep the edge on the house.
>>
>> Newbie's just don't get how long it takes and how hard it is to get
>> the edge consistently and over long periods of time. A newbie thinks
>> if they make money one year, they're going to be a successful trader
>> every year. Call me in twenty years with your track record and if it
>> measures up, I'll send you your certificate of validation.
>>
>>
>>
>>
>>
>>
>>
>>
>> --- In equismetastock@xxxxxxxxxxxxxxx, mgf_za_1999 <no_reply@xxxx>
> wrote:
>> > 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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