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Someone wrote:
> What my rules / guidelines / suggestions try to do is
> simply weed out the dishonest or even sloppy system vendors
> by requiring documented real time performance results...<SNIP>
Good real-time results tend to give us all a warm fuzzy feeling. However,
contrary to the belief of most traders, real-time trading results often mean
very little. They don't mean much, unless there have been enough trades to
have statistical significance.
The number of trades required for statistical significance is a complicated
issue in a game like trading. It depends both on the percentage of
profitable trades during a test period and the ratio of the average amount
won to the average amount lost per trade.
The result of 100 real-time trades generally means almost nothing, given
typical win to loss and win-amount to loss-amount ratios. The result of 1,
000 real-time trades under the same conditions typically has a little
significance, but not nearly as much as most traders would think. A mere 1,
000 trades can be very misleading. From a scientific perspective about all
that could be said is that the result is interesting and probably warrants
further study. The result of 10,000 trades typically is significant enough
that it can be said there is a degree of scientific evidence, but even that
number can be misleading.
The problem with the "I won't trade a system without real-time trading
proof" philosophy is it is practically impossible for statistically
significant real-time results to exist. A trading method that has been
found profitable in a back-test over 10,000 trades is statistically much
more likely to work into the future than a system that happened to be
profitable over a mere 100 trades in real-time, regardless of what most
traders might think.
Anyone who is going to limit their trading methods to systems proven to work
in real-time must consider only systems that were developed a very long time
ago and that have been traded consistently without modification since. They
are not easy to find.
-Bob Brickey
Scientific Approaches
sci@xxxxxxxxxx
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