backtest for 3 years, blow up in 3 days,

[Trader666]

I agree that most people are better off doing something else. But that's because most people don't understand that backtesting is a lot more than coding an idea and running it on historical data. One has to deal with nonstationarity, survivorship bias, modeling error, risk management, money management, etc.

But it's wrong to categorically say that "back testing simply cannot work" as you did... maybe that's true for the definition and expectations of backtesting you had in mind though.

Does this give you pause? He's still doing very well with technically based systems.

"I know of no way to validate conjectures concerning technical trading without back testing"
--William Eckhardt

Quote from Don Bright:

I'm sorry if I didn't get deep enough into my explanation it would just take too much detail. And, yes, what you noted as contradiction was simply showing what our traders do use for reference, not a general back test in the standard sense of the term. My main point is that the time I've seen so many traders take with their "testing" could have been put to better use by "doing" - not willy nilly, or random, but a well thought plan in real time can be tested for real, not paper trading, not back testing. I'm not trying to "dis" anyone's ideas, just pointing out that, IMO, much more can be done in less "real time" for a more valuable result.

But, as I always tell new people, do what you think will help you build the confidence you need to execute.

All the best,

Don

 

[jimbojim]

Quote from Trader666:

"I know of no way to validate conjectures concerning technical trading without back testing"
--William Eckhardt

"I know of no way to validate conjectures concerning technical trading without actual trading" --jimbojim

Thatz too stupid of you trader6666. Backtesting cannot validate anything. It can only provide HOPE. Eckhardt I don't know who he is but he sound like a paper trader. Conjectures can never be validated anyway. Too stupid to say that. Conjectures can only be falsified. My conjecture is that trader666 is a paper trader. If he displays a real trading record my conjecture is falsified.

Good Lord...

 

[Thunderdog]

Quote from jacksmith:

One common story I had heard about trading system is that,

Successfully backtest for 3 year's data, yet the system blows up in 3 days,

what causes this ?

Thanks.

Not being able to trade the back data.

 

[TraderZones]

Quote from Don Bright:

(Don't hate me for this)... but I've written several times why back testing simply cannot work. It "might" help you figure out what cannot work, but cannot tell you what "will" work.

There are simply too many variables involved that cannot be programmed/duplicated... things like.... hmm? Did the gov't decide to blow up Lehman brothers? Where was the PREM/DISC top FV at time of entry on June 11, 2004? 9/11 events. Peers CEO problems, Drug interactions for Pharms/Insurance co's (Tylenol etc.).... but not just event driven movements.

I've seen too many smart people so disappointed over the last few decades when their months or even years of back testing blew up in their face...often they simply were not aware of something that "could" be programmed in, but in their defense, they were trying to do something that I feel cannot be done.

Even going back to basic statistics.... our entire universe of recorded trading is a very small sample. And the "rotational" nature of index tracking is so mis-leading that even trying to replicate the entire market moves is impossible. For example (the most obvious lie to the investor) - "the market returns 10% historically, LOL... oh yeah? What market? The original Dow 30 or the other hundred stocks that were bankrupt and replaced? If you bought the original 30, you would have GE left, and maybe not for long, LOL.

All that being said, we do use historical charting for pairs analysis but only after digging deep into the fundamentals of each stock. Many pairs revert to the mean historically, and can give you an idea that a repetitive reversion might take place..but, again, which stock in the pair is the most subject to being taken over? Yes, this is taken into consideration when trading pairs, and a reason for trading multiple pair for risk flattening purposes.

FWIW,

Don

AMEN

 

[DT-waw]

Quote from jimbojim:

Thatz too stupid of you trader6666. Backtesting cannot validate anything. It can only provide HOPE. Eckhardt I don't know who he is but he sound like a paper trader.
Good Lord... [/B]

manual, discretionary trading can also provide only HOPE that it will generate profits in the future.

Eckhardt manages over 300 million dollars and is profitable over many years.



let's hope we will always have thousands of dumb ignorants like you - fool and his money need to be separated resulting in money flow into smarter hands ie. eckhardt.

 

[Trader666]

My conjecture is that you're a fool, especially since you wrote your drivel without even knowing who William Eckhardt is or bothering to google him... good luck idiot, you'll need it.

Quote from jimbojim:

Thatz too stupid of you trader6666. Backtesting cannot validate anything. It can only provide HOPE. Eckhardt I don't know who he is but he sound like a paper trader. Conjectures can never be validated anyway. Too stupid to say that. Conjectures can only be falsified. My conjecture is that trader666 is a paper trader. If he displays a real trading record my conjecture is falsified.

Good Lord...

 

[Trader666]

Actually it's $700 million. I gotta laugh when people on ET think they know better than someone like Eckhardt when the fact is that nobody who's ever posted on ET is even close to being in the same league. And in jimbojim's case he thinks he "knows it all" but never even heard of him

Quote from DT-waw:

manual, discretionary trading can also provide only HOPE that it will generate profits in the future.

Eckhardt manages over 300 million dollars and is profitable over many years.

let's hope we will always have thousands of dumb ignorants like you - fool and his money need to be separated resulting in money flow into smarter hands ie. eckhardt.

 

[Dobbes]

Those of you hating on optimization: I do know what you mean by excessive curve fitting but almost nobody talks about under-optimization. Optimizing parameters is not inherently evil and should be done on a continuous basis to prevent system decay.

Also, a system blowing up isn't a bad thing as long as its done responsibly. You have to be proactive about pulling the plug when the edge dissipates before you trade your profits away. Sometimes its earlier than you would like, but you have to manage the risk as it comes.

 

[JaiSreeram]

Quote from SuperCruz:

Thanks for the links, JaiSreeram. However, those experiments do not look complete or are they?

You are correct regarding the experiments. Just do not know what has happened to the fellow who started them all, was doing a good job. Hopefully someone else can fill up the gaps.

 

[SuperCruz]

Quote from JaiSreeram:

You are correct regarding the experiments. Just do not know what has happened to the fellow who started them all, was doing a good job. Hopefully someone else can fill up the gaps.

You are correct, JaiSreeram, they were indeed good. Is that guy around? Anyway, let us hope that someone else "fill up the gaps".