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It has been suggested by some to use the cash index (SPX, SPY, INX, etc.) to
chart and trade the OddBall system and variants.
My research shows that historical backtesting results in TS using the cash
index can generate wildly inflated, overoptimistic performance results.
Beyond the well known fact that trades placed at market open on the cash
index do not reflect the futures open due to globex activity (in which case
price can have already moved substantially during globex away from prior day
close), there seems to be some other differences in price behavior that add
to the over optimistic exuburance of cash index backtesting results as well.
Recent example using actual SP futures SPM2 data:
TNP on data from 3-14-02 till 5-17-02 using SPM2 data with Original OddBall
at 7,3,1 = $11,925 TNP with $18,700 MIDD
TNP on data from 3-14-02 till 5-17-02 using Cash index data with Original
OddBall at 7,3,1 = $14,960 with $17,427.50 MIDD
In this case the cash index results show approx. a 25% performance inflation
for TNP.
I have an interesting, initially promising OddBall variant that shows:
TNP on data from 3-14-02 till 5-17-02 using Cash index data = $27,787.00
TNP on data from 3-14-02 till 5-17-02 using SPM2 data with = -450.00
(negative)
If you compare longer term backtested results for the Cash index and the
futures contract you will also see wide enough differences to conclude that
the cash index is unrealistic for projected performances.
My results on SP futures data show that by the end of SPZ1 contract, short
term backtesting (optimization) showed clearly
that the 11:00 OddBall system would have earned more using inputs 7,7,7 and
that traders who would have continued using these inputs would have earned
substantially more than those who would have used the default inputs of
7,3,1 in year 2002.
There appears to be a case for on going research on determining length of
look back period for determining optimal inputs and then applying those
inputs to a predetermined walk forward period in the future.
Johan
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