Registered: Oct 2001
10-27-02 08:19 AM
Have a look at the works of Dennis Meyer: he wrote a series of articles about this way of walk-forward optimization in the magazine "Technical Analysis of Stocks and Commodities".
The intervals you choose should overlap. Say you optimize on a time-span of 3 months (Jan, Feb, Mar), trade 1 month (Apr). Then pick (Feb, Mar, Apr) as your next optimization interval and trade May.
As to the lengths and ratio of optimization and trading interval you have to test thoroughly the market you want to trade.
The hope with this kind of testing is, that you capture a stretch of stationarity in the data, you expect the behaviour of the last opt interval to spill over into your trading intervals (That's what is called a trend in TA: up, down, or sideways).
I did not too much testing this way, but you can see that your optimal parameters jump around a lot: a change of 100% or more is quite common.
A word to the concept of "parameter": most people fail to understand that not only something like the number of periods you use e.g. for the RSI is a parameter. The very rules you use, breakout above whatever level, support/resistance etc. are parameters. Optimization may be done via genetic programming.
They - like any parameter - must be optimized or they will not work. The problem is of course the same: you can only optimize with past data, the data of the future are not available.