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Why Use Strategy Optimization
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Why Use Strategy Optimization

  #1 (permalink)
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Why Use Strategy Optimization

Hello,

https://www.youtube.com/watch?v=uc4EGZm5cag

I been developing and back testing a few trading strategies in NT7. I am still a bit new.

I was watching the video on how to create strategy. The strategy shows the back test made good money.

But at times 1:40 and 19:40 in the video he says "DO not use this strategy cause I assure you it will not make money in forward testing"

He is doing optimization and strategy shows to make money.

I don't understand why trader can't use this strategy if optimize settings shows the strategy made money.

What is the purpose of Optimization if can't use the settings to make money?

Thanks,

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  #3 (permalink)
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goodoboy View Post

What is the purpose of Optimization if can't use the settings to make money?

Thanks,

To keep programmers employed, burn CPU cycles, and find folks something else to do, this makes them feel better while they're losing money, until they figure out what might actually work.

Travel Well
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  #4 (permalink)
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ratfink View Post
To keep programmers employed, burn CPU cycles, and find folks something else to do, this makes them feel better while they're losing money, until they figure out what might actually work.

Thanks ratfink for response,

So optimization gives programmers jobs? can you please explain here?

Yes, I agree the optimization takes a long time to run.

Can you please explain what you mean by this "this makes them feel better while they're losing money, until they figure out what might actually work."?

Thanks

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  #5 (permalink)
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goodoboy View Post
Thanks ratfink for response,

So optimization gives programmers jobs? can you please explain here?

Yes, I agree the optimization takes a long time to run.

Can you please explain what you mean by this "this makes them feel better while they're losing money, until they figure out what might actually work."?

Thanks

Writing countless optimisation systems over the decades has kept many employed, obviously excuse the overall tongue-in-cheek nature of my comment. Ditto I think it makes people feel better because they think the optimisation system is doing something productive for them, when in most cases it is an illusion.

Many users of optimisation do so under the mistaken belief that the past can predict the future, so if we have enough data and optimise accordingly, then it will predict the future better. Under this argument more data and more optimisation is therefore always seen as a good thing, sadly it only worsens the problem of curve fitting, usually in the absence of a meaningful model, at some level.

However, a knowledge of where we are in relation to the past and similar conditions that have occurred in the past is obviously an asset. If this is used in conjunction with a useful model on whatever timeframe you work, then useful results can be achieved, but in general the facts speak for themselves - most users of optimisation do not get much in the way of positive benefits, systems fail when they meet the real world and live data.

If you are serious in this area I would recommend looking at the work of folks like Kevin Davey @kevinkdog who do seem to 'get it' and make it perform profitably.

Cheers

Travel Well
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  #6 (permalink)
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ratfink View Post
If you are serious in this area I would recommend looking at the work of folks like Kevin Davey @kevinkdog who do seem to 'get it' and make it perform profitably.

In this thread here
KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)
And this book here
Building Winning Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading (Wiley Trading)
And in half a dozen webinars

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Optimizing a strategy does nothing more than curve fit the parameters to past data. It does virtually nothing to improve the strategy in the future. I learned this lesson many moons ago.

All optimization routines in software packages do is help sell the software,

Wow look at the advanced optimization capabilities of our software you will be able to fine tune your strategy for maximum profits at the click of a button.........

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  #8 (permalink)
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ratfink View Post
Writing countless optimisation systems over the decades has kept many employed, obviously excuse the overall tongue-in-cheek nature of my comment. Ditto I think it makes people feel better because they think the optimisation system is doing something productive for them, when in most cases it is an illusion.

Many users of optimisation do so under the mistaken belief that the past can predict the future, so if we have enough data and optimise accordingly, then it will predict the future better. Under this argument more data and more optimisation is therefore always seen as a good thing, sadly it only worsens the problem of curve fitting, usually in the absence of a meaningful model, at some level.

However, a knowledge of where we are in relation to the past and similar conditions that have occurred in the past is obviously an asset. If this is used in conjunction with a useful model on whatever timeframe you work, then useful results can be achieved, but in general the facts speak for themselves - most users of optimisation do not get much in the way of positive benefits, systems fail when they meet the real world and live data.

If you are serious in this area I would recommend looking at the work of folks like Kevin Davey @kevinkdog who do seem to 'get it' and make it perform profitably.

Cheers

Thank you very much for the explanation. I am reading Kevin Book right now and yes, I ask him questions before. He is good guy.

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Thank you SMCJB, I am reading the book now.

Thanks,

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  #10 (permalink)
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Seahn View Post
Optimizing a strategy does nothing more than curve fit the parameters to past data.

Thank you Seahn for the explanation,

So when optimizing, the software takes the data from past and find some parameters that would have produce a profit for that data it optimized?

Thanks

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