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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: Rick who wrote (32697)	10/2/2000 11:17:01 AM
From: tekboy	Read Replies (1) of 54805

Why would the discarded strategies have anything to do with the successful one? I think I came up with the answer to this one. If the "strategy" in question involves betting on the recurrence of a pattern that appears in historical data, you better be sure the pattern is "significant" and thus is likely to persist in the future. One way of ascertaining this is to locate the causal mechanism for the pattern's appearance and determine that it is still going strong. A second, less intellectually challenging way is to use tests for "statistical significance," i.e. what the odds are that the pattern might have appeared by chance. It's in that second case that the number of strategies tried and discarded becomes relevant: If I test a thousand "strategies" on a sample of historical data, then by definition it's highly likely that a few of them will post amazing results that seem like one-in-a-thousand shots. If I then throw out the rest and say to you "hey, try this one, look how well it did," you are being primed for a sucker bet because there is no real reason to believe the strategy will continue to outperform. tekboy/Ares@thinkthat'sright;remember,I'minnumerate.com

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