Thanks again Mike ... See also my previous answer. Just one more remark. Here you are suggesting to take 1 to 3 year for the OOS period. When using commodity time series, this is more or less what I am doing. Why ? Because a lot of commodities coming from the agricultural sector have these typical yearly cycles. But when using time series based upon stocks ( S&P500 etc. ), I am using a 5 to 7 year OOS period. Simply because of the economic cycle. I am telling you this because it shows how I am thinking. Just taking a period because somebody gave me a rule of thumb is rather tricky in my eyes. For me there must be a good explanation for the length of that period ...
Regards, Ton. ----- Original Message ----- From: Mike To: [email protected] Sent: Monday, October 05, 2009 11:32 AM Subject: [amibroker] Re: Is the Walk forward study useful? Ton, You said "If you can help me to get things done in an objective way then I will be delighted to know how you want to do that" What I was suggesting was: 1. Identify what measure you will use to judge the IS/OOS period sizes (i.e. in my case I used consistency of CAR). 2. Run walk forward with IS ranging from 1 year to 3 years and OOS ranging from 1/8 to 1/3 of the IS period. 3. Calculate summary statistics for each IS/OOS combination for the measure that you decided upon in step 1 (i.e. in my case I calculated the average CAR and the standard deviation of CAR from the OOS samples). It may help to plot a distribution to visualize the data. 4. Observe whether one IS/OOS combination stands out as having the most normally distributed values. Naturally, there is a limit to how many IS/OOS combinations we can try before we have curve fit our results. This is where I find Pardo's ratios to be helpful. By keeping within the suggested range, we are leaving untested many alternative combinations. Mike --- In [email protected], "Mike" <sfclimb...@...> wrote: > > Ton, > > 1. Pardo disagrees with Aronson (and Bandy). Pardo suggests that a OOS to IS ration of 25% - 35% is best, but that a good rule of thumb for empirical testing is 1/8 to 1/3. > > 2. Yes, I suspect that each strategy will have its own best values for IS/OOS and that other values will appear as useless. It is up to us to try and find the best values. > > With respect to your comment: "I am getting results that show a random pattern", my question remains; What are you measuring? In other words, what values appear random - your fitness value? CAR? Something else? > > 3. I have done very much as you ask, except that I also varied my IS period. I mostly kept my ratios within Pardo's suggested 1/8 to 1/3, but went as low as 1/12 and as high as 1/2 just to be sure. > > For example IS=1 year, IS=2 years, IS=3 years giving > > IS1yr+OOS6mth, IS1yr+OOS3mth, IS1yr+OOS1mth > IS2yr+OOS12mth, IS2yr+OOS6mth, IS2yr+OOS3mth > IS3yr+OOS18mth, IS3yr+OOS12mth, IS3yr+OOS6mth > > IS2yr+OOS6mth produced the most consistent CAR, even though a weighted UPI was used as the fitness function for the actual walk forward. > > I do not have a strong opinion as to whether or not there really is a relationship between IS and OOS sizes. I found that Pardo's rule of thumb was as good a starting place as any. I was happy that my values (25%) coincided with what he advised. But, had my studies suggested a ratio outside of Pardo's range, I would have still gone with what my results suggested, despite Pardo's advice. > > Mike > > --- In [email protected], "Ton Sieverding" <ton.sieverding@> wrote: > > > > Hi Mike, > > > > What I am saying is : > > > > 1. That according to David Aronson "There is no theory that suggests what fraction of the data should be assigned to training ( IS ) and testing ( OOS )." and that "Results can be very sensitive to these choices ... ". I assume that he knows where he is talking about ... > > > > 2. That when I am doing WalkFoward tests following the advice of Howard Bandy, Robert Pardo AND Van Tharp, I am getting results that show a random patron when changing the OOS en IS periods. So my conclusion is that WalkFoward is a subjective test ... > > > > Therefore I have serious problems using WalkFoward tests. If you can help me to get things done in an objective way then I will be delighted to know how you want to do that. But for sure Van Tharp did not help me ... > > > > Please do a simple WF test with OOS=1year and IS=1month...12months. So creating WF results for OOS1y+IS1m, OOS1y+IS2m etc. And see what you are getting. This is purely random. The result says nothing to me ... > > > > Regards, Ton. > > > > > > > > ----- Original Message ----- > > From: Mike > > To: [email protected] > > Sent: Monday, October 05, 2009 9:29 AM > > Subject: [amibroker] Re: Is the Walk forward study useful? > > > > > > Ton, > > > > Are you saying that you have not found an IS/OOS pair that works well? What measure are you using to judge "stability" of the walk forward process (i.e. what measure are you using to judge the process as random)? > > > > After testing with multiple IS periods, and with multiple OOS periods, I was able to identify "fixed" window lengths that proved more consistent than the others tested. > > > > I reached this conclusion by charting a distribution curve of CAR for the OOS results. My fitness function is currently based on UPI, and thus my walk forward is driven by that value. However, ultimately my interest is in how consistent CAR would be which is why I used that for evaluating the goodness of fit for the IS/OOS period lengths. > > > > In my case, over a 13 year period, a 2 year IS and 6 month OOS (for a total of 26 OOS data points) produced the most normal looking distribution of CAR results (i.e. central peak, smallest standard deviation). Excluding the results from all of 1999 and the first half of 2000 (during which results were abnormally strong), the distribution curve looks even better. > > > > Also, have you tried working with different fitness functions? Perhaps your fitness function doesn't adequately identify the "signal" and thus misguides the walk forward, regardless of IS/OOS window lengths. > > > > I am in the process of running a new walk forward over the last 7.5 years using Van Tharp's System Quality Number (SQN) as my fitness function. I have kept the same 2 year IS/6 months OOS for a total of 15 OOS data points. My system strives to generate a minimum average of 2 trades per day, so each IS period generally has 1000 or more trades from which to calculate the fitness. > > > > It has not run to completion yet. But, for the periods that have produced results, the results look promising (at least with respect to the SQN of the OOS relative to the SQN of the IS, I have not yet created the distribution of CAR for OOS). > > > > Assuming that the remainder of the results are equally strong, I will walk forward further back in history to get the full 26 data points to compare against the results produced using my UPI fitness. If the CAR distribution is more normal using SQN as fitness, then I will officially start using SQN for generating optimal values for my next live OOS. > > > > If you are willing to share, I would be curious to hear if SQN as a fitness function was able to produce a more stable walk forward for you, and what measure you are using to judge "stable". > > > > Mike > > > > --- In [email protected], "Ton Sieverding" <ton.sieverding@> wrote: > > > > > > Hi Howard, > > > > > > I still am struggling with the following sentence from David Aronson : "The decision about how to apportion the data between the IS and OOS subsets is arbitrary. There is no theory that suggests what fraction of the data should be assigned to training ( IS ) and testing ( OOS ). Results can be very sensitive to these choices ... ". Because this is exactly what I am seeing. WalkFoward results are more then sensitive to the IS/OOS relation and in many cases a pure random story. I am getting more and more the feeling that WalkForward is not the correct or better objective way to test trading systems. With all respect to Robert Pardo's idea's about this topic and what you are writing in QTS ... > > > > > > Regards, Ton. > > > > > > > > > ----- Original Message ----- > > > From: Howard B > > > To: [email protected] > > > Sent: Monday, October 05, 2009 12:48 AM > > > Subject: Re: [amibroker] Re: Is the Walk forward study useful? > > > > > > > > > Greetings all -- > > > > > > My point of view on the length of the in-sample and out-of-sample may be a little different. > > > > > > The logic of the code has been designed to recognize some pattern or characteristic of the data. The length of the in-sample period is however long it takes to keep the model (the logic) in synchronization with the data. There is no one answer to what that length is. When the pattern changes, the model fits it less well. When the pattern changes significantly, the model must be re-synchronized. The only person who can say whether the length is correct or should be longer or shorter is the person running the tests. > > > > > > The length of the out-of-sample period is however long the model and the data remain in sync. That must be some length of time beyond the in-sample period in order to make profitable trades. It could be a long time, in which case there is no need to modify the model at all during that period. There is no general relationship between the length of the in-sample period and the length of the out-of-sample period -- none. There is no general relationship between the performance in-sample and the performance out-of-sample. The greater the difference between the two, the better the system has been fit to the data over the in-sample period. But that does not necessarily mean that the out-of-sample results are less meaningful. > > > > > > You can perform some experiments to see what the best in-sample length is. And then to see what the typical out-of-sample length is. Knowing these two, set up a walk forward run using those lengths. After the run is over, ignore the in-sample results. They have no value in estimating the future performance of the system. It is the out-of-sample results that can give you some idea of how the system might act when traded with real money. > > > > > > It is nice to have a lot of closed traded in the out-of-sample period, but you can run statistics on as few as 5 or 6. Having fewer trades means that it will be more difficult to achieve statistical significance. The number 30 is not magic -- it is just conventional. > > > > > > I think it helps to distinguish between the in-sample and out-of-sample periods this way -- in-sample is seeing how well the model can be made to fit the older data, out-of-sample is seeing how well it might fit future data. > > > > > > Ignore the television ads where person after person exclaims "backtesting!" as though that is the key to system development. It is not. Backtesting by itself, without going on to walk forward testing, will give the trading system developer the impression that the system is good. In-sample results are always good. We do not stop fooling with the system until they are good. But in-sample results have no value in predicting future performance -- none. > > > > > > There are some general characteristics of trading systems that make them easier to validate. Those begin with having a positive expectancy -- no system can be profitable in the long term unless it has a positive expectancy. Then going on to include trade frequently, hold a short time, minimize losses. Of course, there have been profitable systems that trade infrequently, hold a long time, and suffer deep drawdowns. It is much harder to show that those were profitable because they were good rather than lucky. > > > > > > There is more information about in-sample, out-of-sample, walk forward testing, statistical validation, objective functions, and so forth in my book, "Quantitative Trading Systems." > > > http://www.quantitativetradingsystems.com/ > > > > > > Thanks for listening, > > > Howard > > > > > > > > > > > > On Sun, Oct 4, 2009 at 10:56 AM, Bisto <bistoman73@> wrote: > > > > > > > > > Yes, I believe that you should increase the IS period > > > > > > as general rule is not true "the shortest the best" trying to catch every market change because it's possible that a too short IS period produces a too low number of trades with no statistical robustness --> you will find parameters that are more likely candidated to fail in OS > > > > > > try a longer IS period and let's see what will happen > > > > > > I read an interesting book on this issue: "The evaluation and optimization of trading strategies" by Pardo. Maybe he repeated too much times the same concepts nevertheless I liked it > > > > > > if anyone could suggest a better book about this issue it would be very appreciated > > > > > > > > > > > > Bisto > > > > > > --- In [email protected], "Gonzaga" <gonzagags@> wrote: > > > > > > > > Oh, sorry, I am lost in translation ... ;-) > > > > Yes I meant trades of my IS period. > > > > I've got about 70 trades in my IS period, three months. > > > > BUT, I buy stocks in a multiposition way.This means, that my hole capital divides among several stocks purchased simultaneously. > > > > So, in my statistics, I use to average my trades. When I use maxopenpositions=7, I use to average my results every 7 trades. > > > > Considering that, my trades in three months are not 70, but less ( not exactly 70/7, but less than 70) > > > > > > > > If I use maxopenposition=1, which is, invest all my capital every trade, in three months I would have about 29 trades. > > > > So I suppose I have to increase the IS period.. isn`t it? > > > > > > > > > > > > --- In [email protected], "Bisto" <bistoman73@> wrote: > > > > > > > > > > What do you mean with "I don't have many buyings and sellings"? > > > > > > > > > > If you have less than 30 trades in an IS period, IMHO, you are using a too short period due to not statistical robustness --> WFA is misleading, try a longer IS period > > > > > > > > > > Bisto > > > > > > > > > > --- In [email protected], "Gonzaga" <gonzagags@> wrote: > > > > > > > > > > > > Thanks for the answers > > > > > > To Keith McCombs : > > > > > > > > > > > > I use 3 months IS test and 1 month step, this is, 1 month OS test. My system is an end-of day-system, so I don't have many buyings and sellings.. > > > > > > Perhaps I should make bigger the IS period? > > > > > > > > > > > > anyway, my parameter behaves well in any period. Of course it is an optimized variable, but it doesn't fail in ten years, in none of those ten years, over 500 stocks.. a very long period.. > > > > > > So, couldn't it be better, on the long run, than the parameters optimized with the WF study? > > > > > > (In fact, I am using it now, the optimized variable) > > > > > > That's my real question.. > > > > > > > > > > > > To dloyer123: > > > > > > I haven't understood the meaning of the Walk Forward Efficency, and seems interesting. > > > > > > can you explain it better, please..? > > > > > > > > > > > > > > > > > > > > > > > > --- In [email protected], "dloyer123" <dloyer123@> wrote: > > > > > > > > > > > > > > I have had similar experiences. I like to use WFT to estimate what Pardo call's his "Walk Forward Efficency", or the ratio of the out of sample WF profits to just optimizing over the entire time period. > > > > > > > > > > > > > > A good system should have as high a WFE as posible. Systems with a poor WFE tend to do poorly in live trading. > > > > > > > > > > > > > > If you have a parm set that works well over a long period of live trading, then you are doing well! > > > > > > > > > > > > > > > > > > > > > > > > > > > >
