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When not to trust optimization results?
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When not to trust optimization results?

  #1 (permalink)
Trading Apprentice
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When not to trust optimization results?

Q 4 Big Mike: http: // vimeo.com / 8990209 (had to enter spaces since I"m new)

You mention at the end that this strategy was not profitable. Care to elaborate as to why the NT optimization results should not be trusted?

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  #2 (permalink)
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  #3 (permalink)
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molecool View Post
Care to elaborate as to why the NT optimization results should not be trusted?

In short, it is curve fitted to the past and has insufficient predictive quality to produce a true edge.

Mike

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  #4 (permalink)
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opt methods

what do u think of using particle swarm opt algo to backtest



Big Mike View Post
In short, it is curve fitted to the past and has insufficient predictive quality to produce a true edge.

Mike


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  #5 (permalink)
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bizman70 View Post
what do u think of using particle swarm opt algo to backtest

If your goal is to make money trading, my advice is to not pursue automated strategies until your discretionary trading is consistently profitable.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
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4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
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  #6 (permalink)
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Big Mike View Post
If your goal is to make money trading, my advice is to not pursue automated strategies until your discretionary trading is consistently profitable.

Mike

Interesting comment Mike. I guess there are multiple perspectives on this, but do you mean that a trader without a consistent profitable discretionair trading profits cannot make a profitable system? Or, from another perspective, can a trader without discretionair experience 'mess up' an 'automated strategy' in the implementation?

Regards,

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  #7 (permalink)
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Jura View Post
Interesting comment Mike. I guess there are multiple perspectives on this, but do you mean that a trader without a consistent profitable discretionair trading profits cannot make a profitable system? Or, from another perspective, can a trader without discretionair experience 'mess up' an 'automated strategy' in the implementation?

Regards,

My opinion is that traders pursue automation for the wrong reasons (such as overcoming shortcomings of their own discretionary trading, like rule following, emotional control, etc).

If your discretionary trading is long term profitable, then who am I to say what you should or shouldn't do from there. But, too many people are just suckers for automation. "I just want an easy system with small winners, nothing big, even just $100 a day is fine". lol. And they are serious. Seriously uninformed, mainly. So, if someone asks my advice I don't sugar coat it because maybe, just maybe, they will stop for a minute and not pursue it, whereas most the time traders have a tendency to believe they can do better than the norm or the average.

To specifically answer your question, sure anything is possible. But I believe that if you are seriously wanting to become a good trader, automation is the wrong path.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
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2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
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  #8 (permalink)
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Big Mike View Post

To specifically answer your question, sure anything is possible. But I believe that if you are seriously wanting to become a good trader, automation is the wrong path.

Mike

I am convinced that you mean well, Mike - and unlike many I do appreciate your Zen style approach in shocking your readers into satori. However having coded dozens of strategies (in NT and other systems) over the years the truth - as always - appears to be somewhere in the middle.

Strategies can fail for many reasons. You can have a strategy that shows a consistent edge over several years but in reality suffers from entry/exit/commission/slippage drag. You can have one that tests well over three months and then completely falls apart (been there - done that). There are others that work in certain markets and fail in others - and as a matter of fact 'market weather conditions' are an aspect of black box trading that IMNSHO has been widely neglected and one I have been exploring deeply. Others again test well and turn out to be nothing but form fitted one hit wonders. The list goes on...

However, there is the other side of that coin. You must realize that most human beings are not mentally equipped to be traders. They may intellectually understand the rules and even acquire/adopt a system with an edge, but are then unable or incapable of executing (mentally or physically) according to the rules. I run my own strategies over at Evil Speculator via email/SMS notifications (for low frequency systems) and many of my subs repeatedly tell me that they were unable to take a trade for various reasons. Quite often it's the good ones they are missing. Others simply don't have the discipline and wash out. And some do very well and execute each trade religiously - those are the small minority. Among others a main reason why I am currently considering hooking into Collective2.

Now your argument on first becoming a good discretionary trader may have been valid up until the late 1990s but falls flat in today's market conditions. I have been around and so have you - thus we both know that the tape of the past few years has very little in common with the market conditions we used to trade just a few years ago. Discretionary trading - in particular of intra-day strategies - has become exponentially more difficult than it used to be - and it was a very tough racket to begin with. The emergence of HFTs has completely changed the trading landscape and I believe that over the next few years discretionary trading will slowly go the way of the dodo. Unless you can dynamically and very rapidly adjust to varying conditions maintaining a consistent edge in this market is next to impossible. As a matter of fact, it is exactly that which has changed - market conditions change very rapidly now from one day or even one hour to the next as swarms of HFTs wage battles against each other millions of times per second. The discretionary trader finds himself/herself at a distinct disadvantage for various reasons which is in itself a comprehensive topic and would detract from the core argument I'm trying to make.

Some people have a gift for seeing patterns and correlations, but the human brain can only process a finite amount of information concurrently (e.g. phone numbers are seven digits in the U.S. as the ability to remember them falls off steeply afterward). Thus formulating and refining rules as part of an auto-trading setup is a great exercise in creating a strategy and evolving it from a simple test into something that may hold a consistent edge. And per your little jab at the $100.-/day profit - there is nothing wrong with that approach! Imagine an ES futures strategy that *consistently* banks $100.- day in profit on average each month with one contract. Ever heard of the laws of compound interest/profit? Before you know it you may be trading two contracts, then four, eight, or more. And then we're suddenly talking about $1000.-/day in profit *consistently*. As a matter of fact, this is exactly the type of game HFTs are playing. Tiny swings - very mechanically - over and over again. They are smart, highly adaptable, and the good ones sacrifice big occasional wins for a consistent series of small wins. Of course some of these strategies would not be affordable to retail traders as the entry/exit/slippage cost would offset much of the profits. But one could still produce a similar strategy, find a bar bones broker, and then produce a nice profit each day. There are even funds out there that trade 3rd party strategies that forward test a proven edge.

Yes, many folks are a bit naive about auto-trading - we all know that. But the process of developing strategies and implementing them is an almost essential process for any serious trader this day and age. Gone are the days where you could rely on trend trading or traditional technical analysis - the recent demise of many high profile funds makes my point (tried to post link here but the f....king bot won't let me).

These days I test all my strategies over a four year time frame, which due to very rapidly changing market conditions during that short period actually represents a wonderful back testing opportunity. If you can create a strategy that consistently banked coin in 2008 as well as 2010 then you may just be on to something. And once the rules have been clearly defined putting a human being in the middle of it just does not make any sense. Either you have a system or you don't - period. A human being can observe 'out of the box' conditions and introduce changes to the rules, but unless there is a reason to make adjustments human beings are simply in the way when it comes to *executing clearly defined rules*.

Food for thought - I am looking forward to your thoughts.

Cheers,

Mole

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  #9 (permalink)
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You can't post links until you have five posts. It prevents spam.

I've shared my thoughts on automation in numerous posts and threads. There are some people who agree with me, and some who disagree. There is no right or wrong, not in my eyes at least, I just offer my opinion which is based on my experiences which include both personal experiences plus seeing what others have done as well here in the community or elsewhere.

To answer your original question (post #1), I suggest you read Evidence Based Technical Analysis by David Aronson, it is a great book for understanding the usefulness of backtesting.

Mike

Due to time constraints, please do not PM me if your question can be resolved or answered on the forum.

Need help?
1) Stop changing things. No new indicators, charts, or methods. Be consistent with what is in front of you first.
2) Start a journal and post to it daily with the trades you made to show your strengths and weaknesses.
3) Set goals for yourself to reach daily. Make them about how you trade, not how much money you make.
4) Accept responsibility for your actions. Stop looking elsewhere to explain away poor performance.
5) Where to start as a trader? Watch this webinar and read this thread for hundreds of questions and answers.
6)
Help using the forum? Watch this video to learn general tips on using the site.

If you want
to support our community, become an Elite Member.

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  #10 (permalink)
Trading Apprentice
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Big Mike View Post
You can't post links until you have five posts. It prevents spam.

To answer your original question (post #1), I suggest you read Evidence Based Technical Analysis by David Aronson, it is a great book for understanding the usefulness of backtesting.

Mike

Well, I'm not a spammer - you could probably have helped me out here but anyway - your site, your rules.

I know the book and it's very negative - I prefer 'The Encyclopedia of Trading Strategies' - much more effective read. However, both books are completely outdated at this point.

Your answer suggests that you assume I'm a novice - just FYI, I have coded for thirty years (strategies for over 10 years). But it doesn't seem you want to engage in effective and constructive dialog, so I am just going to go away. Pride often kills the most talented traders.

If anyone else wants to get into more depth - you know where to find me.

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