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[EquisMetaStock Group] Re: How many trades does the evaluation need to be sound



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Hi,

This is in relation to somebody who commented on the number of markets
and number of trades (3000 if I remeber) that were generated.

If you build a system, you can either test it on just a single ticker
or on many at the same time.  The same applies if you optimise. 
Metastock allows you to only do this per ticker.

Suppose you have a simple moving average crossover system with one
parameter and you optimise this parameter, in MSFL

  C - Mov(C,parameter,S)

Say you optimise by calculating the total return trading a single
ticker and search for the maximum return by varying 'parameter'
between 1 and 10.  It hits a jackpot at say '5' and you are done. 
This is the 'ticker' approach.

Now, in stead of doing it this way, you can apply the same system to
ten tickers, caculate the combined return (you probably need now to
work in percentages for it to make sense) and search for the best
value.  This is what I mean with 'across'.

The ticker approach will yield good results as it is optimised per
individual ticker, but is more prone to overfitting.  The across
method should give a more general answer and is useful if you have a
big system and/or a small sample.

Regards
MG Ferreira
TsaTsa EOD Programmer and trading model builder
http://www.ferra4models.com
http://fun.ferra4models.com 


--- In equismetastock@xxxxxxxxxxxxxxx, chichungchoi <no_reply@xxxx> wrote:
> Hi MG Ferreira:
> 
> Could you please explain a little bit more about optimising per
> ticker or across? - if across, you can bundle all the trades together.
> I don't understand what ticker and across mean.
> Thank eveyone for suggestion
> Eric :>
> 
> --- In equismetastock@xxxxxxxxxxxxxxx, mgf_za_1999 <no_reply@xxxx> 
> wrote:
> > 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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