Hi Louis --
If the system you are working with is actually the crossover of two simple
moving averages, the results you get will probably not be very good. I
often suggest a simple system when I am trying to make a point that requires
a system and I do not want the definition of the system to confuse the other
point. You will need a system that is more sophisticated to show good
results. Try the CMO Oscillator in the code posted below.
// CCT CMO Oscillator.afl
//
// A CMO Oscillator
//
//
// Two variables are set up for optimizing
CMOPeriods=Optimize("pds",61,1,101,5);
AMAAvg=Optimize("AMAAvg",36,1,101,5);
// The change in the closing price is summed
// into two variables -- up days and down days
SumUp = Sum(IIf(C>Ref(C,-1),(C-Ref(C,-1)),0),CMOPeriods);
SumDown = Sum(IIf(C<Ref(C,-1),(Ref(C,-1)-C),0),CMOPeriods);
// The CMO Oscillator calculation
CMO = 100 * (SumUp - SumDown) / (SumUp + SumDown);
//Plot(CMO,"CMO",colorGreen,styleLine);
// Smooth the CMO Oscillator
CMOAvg = DEMA(CMO,AMAAvg);
// And smooth it again to form a trigger line
Trigger = DEMA(CMOAvg,3);
// Buy when the smoothed oscillator crosses
// up through the trigger line
Buy = Cross(CMOAvg,Trigger);
// Sell on a downward cross, or 6 days,
// whichever comes first
Sell = Cross(Trigger,CMOAvg) OR BarsSince(Buy)>=6;
Buy = ExRem(Buy,Sell);
Sell = ExRem(Sell,Buy);
Plot(C,"C",colorBlack,styleCandle);
PlotShapes(Buy*shapeUpArrow+Sell*shapeDownArrow,
IIf(Buy,colorGreen,colorRed));
Plot (CMOAvg,"CMOAvg",colorGreen,
style=styleLine|styleOwnScale|styleThick,-100,100);
//Figure 20.2 CMO Oscillator
Now -- back to the issue of validating a trading system --
Tomorrow is out-of-sample. You want to increase your confidence that your
trading system will be profitable when you trade it tomorrow. In order to
do this, observe what happens after you have optimized a system over an
in-sample period, then tested it on the immediately following out-of-sample
data. The automated walk forward process helps you do this. Every step
gives one more observation of the in-sample to out-of-sample transition. If
the cumulative out-of-sample results are satisfactory to you, then you have
increased confidence that your real trades are likely to be profitable. No
guarantees. The best we can hope for is a high level of confidence.
At this point, do not worry about Monte Carlo.
Just concentrate on:
1. Select the objective function that You feel most comfortable with.
2. Design and test the systems of interest to You.
3. Experiment to find the length of the in-sample period.
4. Perform the automated walk forward analysis.
5. Examine the out-of-sample results.
6. Decide whether or not to trade your system.
Thanks for listening,
Howard
www.quantitativetradingsystems.com
On Tue, Apr 15, 2008 at 7:03 PM, Louis Préfontaine <[EMAIL PROTECTED]>
wrote:
> Hi,
>
> I've been experimenting with walking-forward, and I have some questions
> regarding how it works.
>
> I ran a complete random optimization or buying/selling using the variables
> I set (a MCS in fact), and systematically OOS results were worst than IS. I
> don't understand how it works, because whatever if the sampling is IS or OOS
> it is always the same variables that are in place.
>
> Anyone could explain how this work?
>
> Thanks,
>
> Louis
>
>
