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Optimization, statistics, and avoidance of curve fitting 21 replies

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Curve fitting vs optimization

Quoting robots4me
@HeyYou -- I really like this topic -- thanks for creating this thread. {quote} I'll be blunt -- this is a complete waste of time -- unless you have a time machine. We trade in the present -- the only data that matters is your broker's most recent data. You only need to go back in history far enough in order to simulate 50 -- 100 trades, which is your "sample size". You need a minimum sample size in order for your stats to be significant. The data patterns from 2000 to 2014 may never occur again -- there are billions and billions of possible data...
this is really really insightful and it really really make sense especially RECALIBRATION.
I have a different view of the markets now thanks to you.

It makes sense because every year & quarter. you have different values, (i.e. who would have guessed that Brexit is a thing? or that Greece is gonna fall?)
thinking of recalibrating my strategy every quarter. WITH DATA FROM MY BROKER. this is EXTREMELY important because fx is not centralized.
Let ur winners run & cut ur losses short.
Quoting HeyYou
changing the parameters because they didn't work well in the past 3 months is crazy. you need at least 10 years of data...
My POV:
Just like the market, the weather is also hard to predict because of turbulent and other butterfly effects. And if you used 10yrs of data to predict the weather tomorrow, it's cynical, considering the humidity,heat,etc. 10yrs ago vs yesterday varies and yes you need to re-calibrate your system from time to time to adjust with the volatility of the market and major news events just like global warming.

Volatility is the key, whether to use a momentum/mean reversion strategy or simply no trades at all.
Let ur winners run & cut ur losses short.
Quoting LloydOz
I wouldn't bother optimising beyond what is generally accepted. Really. I have about a thousand reasons for saying that, probably most of which have been articulated by others, including the late Mr Babcock who was mentioned here and whose books I did read all those years ago. One is that despite having say a 100 trades, what if one of the settings was only responsible for one trade, say a stop that was triggered once, which influenced the entire results, and without which the results would have been forgettable? Optimising everything else may make...
Well said
Let ur winners run & cut ur losses short.
Quoting remonpilip
{quote} My POV: Just like the market, the weather is also hard to predict because of turbulent and other butterfly effects. And if you used 10yrs of data to predict the weather tomorrow, it's cynical, considering the humidity,heat,etc. 10yrs ago vs yesterday varies and yes you need to re-calibrate your system from time to time to adjust with the volatility of the market and major news events just like global warming. Volatility is the key, whether to use a momentum/mean reversion strategy or simply no trades at all.
from my experience, if you backtest in the long term, you don't lose money.

however after a couple months and years of live trading you may realize that the mt4 strategy tester is no good for optimization..... forget it.
Quoting HeyYou
{quote} the mt4 strategy tester is no good for optimization..... forget it.
The price data from MT4 is stupid.
Quoting hanover
{quote} My 2c fwiw: Excellent posts by topherhk88 here and merlin here. Bruce Babcock, a well known futures trader during the 1980s-90s, wrote a lot of good material about optimization. I found this as a starting point; you might be able to find more of his writing using Google....
Hey, thanks for sharing babcock's reviews blog i rwad it all took me 3hrs to finish reading it very infornative and changed the way I see optimizing.

To shorten the 3hrs read from my POV:
To avoid curve fitting you system must be able to trade on at least 10 other markets with a degree of profitability. Start with a core strategy and if it is profitable on 10 other markets then apply a filter to it and test it again on 10 different markets to see if yout filter is over optimized or nah

He also notes that if you have x systems and each of them works on at least 10 different markets, you have a portfolio

x can be ranging from 1 to infinity

But it's best if you have a system that works well on eurusd but also works at 10 other different markets and other system that works well on usdjpy that also works well on 10 other different markets

Diversification:
Bruce notes that, from his experience one's portfolio needs to have 10-20 markets to avoid strategy down days

His style says that he is always in the market and never even think of trying tk predict the market

His Rules:
Entry
Exit when loss
Exit when profit
Let ur winners run & cut ur losses short.
Quoting remonpilip
{quote} Hey, thanks for sharing babcock's reviews blog i rwad it all took me 3hrs to finish reading it very infornative and changed the way I see optimizing. To shorten the 3hrs read from my POV: To avoid curve fitting you system must be able to trade on at least 10 other markets with a degree of profitability. Start with a core strategy and if it is profitable on 10 other markets then apply a filter to it and test it again on 10 different markets to see if yout filter is over optimized or nah He also notes that if you have x systems and each of...
Also he sacrifice return for stability & ultimatrly lowering dd
Let ur winners run & cut ur losses short.
Quoting HeyYou
{quote} from my experience, if you backtest in the long term, you don't lose money. however after a couple months and years of live trading you may realize that the mt4 strategy tester is no good for optimization..... forget it.
Agreed, i moved to mt5 alr

Wayyyyy faster
Let ur winners run & cut ur losses short.
  • Post #49
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  • Last Post: Sep 28, 2021 5:49am Sep 28, 2021 5:49am
Hi,
My strategy executes entries according to market volatility and volume change and exits are with SL and profits are again according to (fading) volatility.
I have fewest parameters possible to avoid curve fitting.
For long and short trades I have exactly the same entry and exit strategy..
However I have figured out that these both are 2 different realms..
I would like to ask if can tailor my strategy for long and short trades differently.
By doing so would I be definetely get caught by the trap of curve fitting.
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