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In the October issue of our favorite magazine (Technical Analysis of Stocks
and Commodities) there is an interview with James O'Shaughnessy. This
interview will be of interest to those who have a view on the validity of
backtesting as a method for developing trading strategies.
The most interesting point made by Mr. O'Shaughnessy is that backtested
models work best in all fields of human endeavor, not just in trading. Such
models, which he calls "quantitative/actuarial" models, consistently
outperform non-backtested models, which he calls "clinical/intuitive"
models. This is as true for doctors attempting diagnoses as it is for
handicappers picking horses at the track. It is as true for college
administrators judging admissions candidates as it is for parole boards
judging parolees. It is as true for loan officers doing underwriting as it
is for traders judging markets.
The key is to choose a model which performs well in backtesting, and then
*stick to that model*.
Good trading,
The Omega Man
A is A
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