Category Archives for "System Trading"

Jun 11

Multiplex For Greater Profit

System Trading

Two problems that often result from system optimization are one (1) a reduction in the number of trades, a system that generates too few trades can both be more difficult to trade and a low number of trades does not inspire confidence, and two (2) there is a selectivity or specialization risk that, by sheer […]

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Jun 10

Quick Tip: Backtesting mistake to avoid

System Trading

Here’s one quick tip for a backtesting mistake to avoid: on Tradestation, if you develop a strategy using a stop market and a stop loss that gets you out on the same bar: the platform won’t be able to verify whether your stop or target was hit first unless you enable “Look Inside The Bar […]

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Mar 11

Confidence Measures Part 1

System Trading

Accurate confidence is one of the most important skills a strong discretionary trader (or predictor) must develop and possess. A strong discretionary trader should be able to weight how good of a trade or prediction they have and use that weight constructively. If a trader can develop awareness of how good of a trade they […]

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Feb 10

Discover Best Trading Rules with Perceptron Search

System Trading

Every system developer has a list of rules or indicators that they want to test out. The problem every developer faces is narrowing down that list of indicators and rules to the select few that are best worth focusing on. A quite similar and related problem that every developer faces is having some inputs or indicators that they […]

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Feb 10

One Metric to Rule Them All

System Trading

There are many metrics that can be used to evaluate a system’s performance. Of course, the best fitness function is the one that produces the best OOS performance. The most important metric might or might not be the best fitness function. On considering the most important metric: we have many reasonable candidates: total return, return/max dd […]

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Feb 09

WFA Failure Scenario

System Trading

We will introduce a somewhat hypothetical, but nonetheless realistic, walk forward analysis (WFA or WFO) scenario that returns poor results, and then we will suggest alternative strategies that might reveal much better results.  There are two common types of WFA; anchored which can use all the data and rolling. In this scenario, we are only considering […]

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Feb 09

Drop Out for OOS Sanity

System Trading

The vexing problem facing every system developer is the need to validate their backtest. One rigorous way to do that is to use walk forward optimization. However, an argument can be made that the alternative approach of taking all of the data into consideration can also make sense, and, in fact, some highly experienced system developers […]

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Jan 29

Finding The Optimal Period

System Trading

Today’s topic is on finding the optimal periodicity for the RSI indicator and the techniques should apply to other sorts of indicators as well. The good news is that it won’t require any rocket science. John Ehlers has written a lot about this topic, and his articles spurred my interest in the topic, which frankly […]

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Jan 26

Multi-State Classifiers

System Trading

One technique for optimizing systems is to create a regime filter. A most common example is a binary classifier that classifies the market into either bull or bear markets based on closing above or below the 200 day moving average. But, there are problems with binary classifiers and we will demonstrate why a multi-state classifier […]

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