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 Forums ›› Technically Speaking ›› Strategy (System) Design ›› Damn you, out of sample trades!

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 logic_man   Registered: Oct 2010 Posts: 1489 08-23-12 03:46 AM Quote from dom993: I would say try it ... this is the only way to know if your system has a directional edge. You could start using your current max-stop as target, then shrink it (& the target) by increments of 10%. This will at least tell you for which % of your current max-stop you have your maximum directional edge, and which value that is. The reality is, if your system doesn't have a directional edge, then a "scalping" approach really is trading noise. Does the ratio of the maximum win to the maximum loss tell you the same thing or something similar? On the optimized version for the ES, the biggest loss is 8.75 points and the biggest win is 30 points. Unoptimized, it's 25.25 and 40.75, so the ratio tightens up a lot in the unoptimized version, even though that set of trades has the biggest overall win. Honestly, for me, having lived with the model for nearly 3 years now, I take it as proven, to the extent it is possible to prove something in trading, that there is a directional edge. My main issue is finding the marginal areas of improvement I can. That's where I run the big risk of curve-fitting. The actual unoptimized system is almost assuredly profitable, but I am always striving for more. Edit/Delete • Quote • Complain
 dom993   Registered: Jul 2008 Posts: 537 08-23-12 01:01 PM Quote from logic_man: Does the ratio of the maximum win to the maximum loss tell you the same thing or something similar? No ... there are tons of trend following strategies, with win% way under 50%, but avg-win >> avg-loss. Most of them do not have a directional edge, meaning with a target = stop they will have a win% ~ 50%. Their edge is essentially in the trade management, and using a timeframe in which the market trends often & long enough. Edit/Delete • Quote • Complain
 gmst   Registered: Jul 2011 Posts: 3695 08-23-12 01:48 PM Quote from DT-waw: whats worse- hedge fund managers are not smarter than that. so after you worked your ass off developing robust models for 5 years... traded them, etc. the clown (with IL education, of course) can blow you off saying "but i'd rather see a track record on at least a \$1M...." f*** you Sir. this is precisely why most firms lose. they think that out of sample results generated on >1m account have some value. They do not. But let them live in their fairy tales LOL, seems you got some raw deal from some IL guy recently Nevermind though, I agree with your basic sentiment. 5yrs working, developing and refining a model and actually trading it on a 20k account is more valuable to me than a 1 yr out of the sample trading using 1M, if the effort in developing a good model hasn't been there. It takes time to become a good system developer. Edit/Delete • Quote • Complain
 abattia   Registered: Dec 2008 Posts: 983 08-26-12 04:41 AM Quote from logic_man: ... I rolled out a "scalping" system this week which during backtest ... ... So, what happens? I have an 83% win rate through the first 18 trades ... Have you gone back to run a backtest over the period of these 18 out of sample trades? Will give you a good measure of how close to "reality" the previous backtests might have been. Edit/Delete • Quote • Complain
 sle   Registered: Apr 2003 Posts: 1609 08-26-12 06:14 AM Quote from logic_man: The reason for the negative expectancy is that it's deliberately designed to have very few, but big, losing trades. Out of curiosity, why would you deliberately design a strategy to have negatively skewed return distribution, even if the mean is positive? Edit/Delete • Quote • Complain
 oraclewizard77 Moderator Registered: Jan 2006 Posts: 2287 08-26-12 06:25 AM He wants a higher win%, and setting a stop prevents his account getting blown up due to a report coming out when the system is in a trade. Quote from sle: Out of curiosity, why would you deliberately design a strategy to have negatively skewed return distribution, even if the mean is positive? Edit/Delete • Quote • Complain
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