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I trade the S&P futures contract. I understand the pitfalls of
overoptimization and always optimize any systems I develop on several
expired contracts before trying them on out-of-range data.
However, I have a friend who used a totally different approach and with good
success. He optimizes his (stock trading) system every weekend on data from
the previous four weeks. He then uses those settings for the forthcoming
week, optimizing again the next weekend. He acknowledges that he is "tuning"
his system to a specific data set, but does so knowingly with the
explanation that the market over the next week will most likely resemble the
market over the last month. By reoptimizing every weekend with the previous
four weeks data, he hopes to keep his system in synch with the market. He
likens this to developing adaptive indicators.
I know that theoretically this should not work, but in fact it seems to work
pretty well. His system consistently turns a better profit with smaller
drawdowns that it would when optimized over a longer period and then run
against the same data sets.
I'd be interested in any thoughts anyone might have on this approach.
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