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Basically, the idea is as follows:
Systems developers often sell you a system based on optimized parameters
of historical events. Unfortunately, what they typically do is wind up
curve fitting. Though they might tell you that they developed their
system based on five years of daily data, they might have so many entry
and exit conditions as to make any historical test have little
statistical significance as degrees of freedom wind up being too low.
A way of getting around this and fooling the public is by saying that
the system is perfectly fine, but its performance is poor because the
parameters need to be changed. I mean, the market changes all the time,
right? (This is the sleazy system seller speaking, not me!) So, they
reoptimize their parameters again. Now RSI is 18 days instead of 11. The
moving average they use falls to 6 from 9. They trail stops by 1.02%
instead of 0.77%. In the end though, it is the same s--t. This system is
still doomed to fail as now they have reoptimized on new past data, and
it still will not work "walking forward."
Steve Poser
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