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Strategies & Market Trends : Technical Analysis- Indicators & Systems
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To: David Russell Coburn II who wrote (1363)6/10/1997 4:12:00 AM
From: Bruce A. Bowman   of 3325
 
It looks to me like you do quite well expressing yourself.

A couple things that you might consider adding to your list, one of which is easy, the other difficult:

1- be sure to correlate your test results with your actual trading results. If they differ by a significant amount, you aren't trading the way you tested and you need to fix something: either the test or your trading.

2- this is the hard one because it demands a lot of data which often pushes you into stocks you might not otherwise trade. Ideally you would like to test at least 2 separate ranges in your data that don't overlap. Look at the results of the 2 separate test summaries and validate that over enough time and different stock symbols that you see results that are consistent. This attempts to resolve the effects of inadvertantly curve-fitted tests.

The concept actually comes from optimization where the data is fractured into thirds. The optimization is done on the center third and the first and last thirds are used to compare the results by testing with the parameters found during optimization. If they don't compare, then the optimization is faulty.

This isn't something that you addressed, but "curve-fitting" gets a lot of bad press. Ideally you'd like to trade a system that's a curve-fitted system. The problem is that the curve is constantly changing. A system that can identify the characteristics of the curve and select the right indicator(s) and parameters for the indicator is resting on the shelf directly below the Holy Grail in that far away place, just waiting to be found.

Bruce
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