The Importance of Simplicity

Discussion in 'Strategy Development' started by Corso482, Nov 4, 2002.

  1. As a general rule, are simpler strategies better than complicated strategies? My reasoning is that the more complicated your strategy is, the more likely your returns are the result of data mining (or whatever it's called when you unrealistically perfect strategies for backtesting). Also, are strategies that work over long periods better than ones that only work over short periods? You could rationalize that the longer you test, the more different the markets were back then and therefore the results aren't germane to today's market. So...would the ideal system be simple and work over long periods of time?
  2. It's not the number of indicators, its the type of indicator(s) that should be your concern. Here are some classifications that Rich Denning of the AIQ-EDS user's group posted, that I think are good guidelines.

  3. My experience is that simpler is better. For every complex system I've seen, I can achieve equal or better results with simple systems that are more robust over time and varying conditions.

    Even complex systems fall into basic trend, momentum, and support/resisitence categories.

    Take a simple system like this on the S&P e-mini:
    40 period moving average
    10 period moving average
    when the 10 crosses up through the 40, go long
    when the 10 crosses down through the 40, go short

    That will yield decent results that is very consistent over time (you will experience moderate draw-downs, but it is profitable). I can automate a system like that in about 10 minutes.

    Or, I could (and have) spent 6 months designing and automating a complex system that uses multiple technical indicators, fuzzy logic, multiple time frames, etc. etc., and achieve results that are only marginally better, but it's more brittle.

    Stick with the simple stuff.
  4. simplicity is the way to go.

    any mathematical indicator that is complex is inevitably based on price action; making it so complex is generally a psychological game we play with ourselves to convince us that something that is either imaginary (read: statistically meaningless) is real, or an attempt to convince ourselves of the obvious, as we are taught that the more you work at something, the more you understand it.

    my point is this: if you like math and charts, go nuts, otherwise everything you need is right in front of you.
  5. bungrider,

    Exactly what I was trying to say, but much more concise. Thanks.
  6. .. and you get out when ...
  7. bobcathy1

    bobcathy1 Guest

    This is what I use

    5 and 15 MA for trend
    Stochastics for OB/OS
    Bollinger Bands for range
    Volume for the hell of it.

    When the 5 and 15 cross enter.
    When they bang the Bollinger get out.
    Buying the first pullback into the 15 with confirming stochastics is good too.
    Also get out when the readings on the stochastics cross into below 20 or above 80 from the opposite line.

    I use candlesticks to spot reversals on the longer charts.
    Just bars on the shorter time frames.
  8. aphexcoil,

    It's always in the market. Each time the 10 period crosses the 40 period, reverse the current position from long to short or short to long.
  9. Neil


    and who says no-one ever discusses specific strategies! good work guys.. I find that the more complex I try to be, the further I move from where I want to be.. which is to be profitable obviously.. or sometimes maybe even just not to lose too much so I can continue playing this compulsive and disorderly game..

    I think finding a consistant approach in your trading plan is surely one of the keys.. for some time I have been using pivot based support/resistance methods combined with simple price based trend line breaks.. on various time frames.. usually 3 and 5 mins.. but honestly.. the markets are.. as someone.. whose name I dare not speak.. once described as not random but chaotic.. so I am not too sure anymore.

    Oh well, back to the drawing board.. gradually ma crossovers have been featuring in my dreams.. I am sure this is a sign of some kind.. I am prospecting them once more and finding I definitely like the attractive colours that I can make them appear on my charts, and also they lend themselves remarkably well to those colour bar thingies that I can make happen in sub panes.. they might not help me too much but one should not underestimate the value of an appealing chart environment to trade from..


    ps. As regarding indicators and trading.. a guy on cnbc europe put it best the other day (on another matter).. 'ah now, thats like the irish orienteering problem, if I was wanting to be going there.. I wouldn't be starting from here... '
  10. What's your BB setting?
    #10     Nov 5, 2002