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Strategies & Market Trends : P&S and STO Death Blow's -- Ignore unavailable to you. Want to Upgrade?

To: TREND1 who wrote (23388)	1/10/2003 12:23:58 AM
From: TREND1	Respond to of 30712

Is Testing/Optimizing Valid? One of the most common mistakes made in system testing and optimization is over-fitting the trading rules to a specific set of data. Before you get too excited when you think you've found the "holy grail" of trading systems, check the following. · Check the equity line (see Using The Equity Line). It should gradually slope upward. Abrupt spikes indicate inconsistent profits. · Test the system on different time frames. The results should be similar to those on the original data tested. · Test the system on different securities, across different industries. · Optimize again using only half of the original data tested. Then test the remaining data using the optimum values. If the system is valid, the results of the two tests should be similar. · Test the system on different types of markets (e.g., upward trending, downward trending, and sideways). A good system should work in all types of markets, since you won't always know when a market changes from trending to trading or vice versa. · Remember that human expectations control the prices of securities. Therefore, it may not be realistic to expect a mechanical system to consistently predict changes in their expectations. We suggest you use trading systems in conjunction with other investment analysis techniques.