It says nothing about the future. No one can predict the future. Statistics characterizes the past behavior of prices. If the mechanism changes then your conclusions might not be meaningful. For example, if the margin requirement for trading the Emini SP500 futures contract is raised then the behavior of prices might change.
Eric, In addition to all of the good feedback you've already received, you might also find the following thread useful. http://www.elitetrader.com/vb/showthread.php?s=&threadid=36083&highlight=activate/deactivate Good luck, -EricP
thx for clarifying - some time ago, i searched the web for bootstrapping but could only find a few references; i have now re-tried with including "nonparametric" in my search and immediately got a lot more useful papers explaining the concept, thx for your help.
EircP - that was an excellent thread - i have a couple of quick questions on that if i may: 1. if i have two strategies, e.g. A has avg. profit 1.0 with confidence 98%, B has avg. prof. 1.1 with confidence 96%; which one is preferable? can one just do a mechanical / arithmetic comparison / interpolation, i.e. 1.0*98% vs 1.1*96% to compare A vs B? 2. i may have strategy A with 1000 data points, confidence 95% and strategy B with 20 data points confidence 99%. how to compare A vs B while "adjusting" for sample size differential? i have come up with a measure which (a) multiplies avg. profit by confidence level and then (b) adjusts the resulting product value by the sample size, i.e. if there are three strategies with sample sizes 100, 500 and 1000, then the adjustments would be 100/1000; 500/1000 and 1000/1000, respectively. i realize it's a bit redundant since sample size is already in the confidence level formula. i'd appreciate any help / comments.
The classical textbook is Bradley Efron, Rob J. Tibshirani. An Introduction to the Bootstrap. Wikipedia also has some useful information
thanks for the references, i will look them up. now if somebody could answer a couple of my other questions from above, i'd appreciate it very much; they don't seem very complicated... - i had PM'ed EricP once already with another question some time ago, and i don't really want to abuse his generosity with his time, thx.
Sorry, just saw your questions. 1) That's a fortunate problem to have. I would trade them both! If I could only trade one of the two, I would trade the first one and consider increasing trade size by 10% if desired to increase profitability. 2) I'm not sure I understand the need to make further "adjustments" for the sample size. Obviously, the larger the sample size, the greater the degree of confidence you can have in the profitability of the system being reviewed. But, that is precisely what the equation already accounts for. Personally, I like to put an upper limit on the sample size (for me, upper limit ~ 150), to ensure that a huge sample size doesn't make any negligible profitable system have a confidence level of 99%+. Otherwise, you could have a system with a very small profit and a very large standard deviation (an otherwise unattractive system) APPEAR to be extremely attractive based upon a sample size of 20,000 trades, for example. Other way to handle this would be to require a minimum profit per trade of some fixed amount, in order to trade the system. In this way, a system with an average profit of $1 per trade, with a standard deviation of $1500 could be eliminated, regardless of a potentially high confidence level that would be generaged based upon 20,000+ trades. P.S. Post any other questions in the other thread, to keep the discussion more easy to follow.