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I would optimise and evaluate per individual ticker, so then you still
need 30 + degrees of freedom + some more, just to be sure trades. If
you test the system across different tickers, then it depends on how
you optimise. Do you optimise per ticker or across - if across, you
can bundle all the trades together.
Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder
http://www.ferra4models.com
http://fun.ferra4models.com
--- In equismetastock@xxxxxxxxxxxxxxx, "Gabriel Pellegrini"
<gabrielpellegrini@xxxx> wrote:
> The sample has 74 markets and 3000 trades.
> ----- 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
> >
> >
> >
> >
> >
> >
> > Yahoo! Groups Links
> >
> >
> >
> >
> >
> >
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