On Sat, Dec 4, 2010 at 7:05 PM, ShaggsTheStud <[email protected]>wrote:
> Take for example two frogs who are trying to catch a fly. Both frogs > notice that the fly lands on a lilypad once an hour. So both sit on the > lily pad and wait. One decides to chase the fly, but the fly moves much to > fast for him. Eventually the fly makes it back to the lilypad, where the > patient frog has been waiting patiently. > > Let us not forget that curve fitting to the past does not guarantee results > in the future! Re-optimizing over short periods of time makes your results > even less statistically relevant. > > I agree. To make it a little more scientific, I use a "loaded coin" analogy, instead of the frogs analogy. How do you know that a coin is loaded? Well, you flip it a number of times and look at the distribution of heads and tails. But if the number of flips is not sufficient, even a fair coin may look like a loaded one. Same thing with the strategy testing. We are attempting to find a "loaded" strategy in the sense of positive expectancy. The number of trades is analogous to the number of coin flips. The larger the number of trades (and the number of flips), the more statistically significant is the distribution. More formally, the error is defined as standard deviation divided by the square root of the number of observations. You may notice that the inverse of this term is found in the Performance Index metric, which is why I like it so much for optimization purposes. -- You received this message because you are subscribed to the Google Groups "JBookTrader" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/jbooktrader?hl=en.
