Quote from dima777:
what you mean by flat response?
When I say combination, in this example, I'm referring to the combination of moving averages and the system buys when one moving average crosses above the other, and sells when it crosses below.
Another system may only have one parameter (not a combination), like buy on a n day breakout (example... optimize to 21 day high breakout), in that case, the parameter is the window of time you are using to determine entry.
Back to the moving average combination/crossing system.
Suppose you ran many, many simulations, and one combination (say 50/100 cross) gave you 10,000 profit, but the nearby neighbors gave you decreasing profits (neighbors being, 40/100, 60/100, etc..), of only 5,000 or less. You would say, you optimized the combination of 50 and 100 (which peaked at 10,000), but it was not robust, as the curve (graph of profits vs. paramaters) looks like a hill.
But maybe a part of the hill goes flat a long time (simulations range from 1day to 30day with all crosses), that portion is considered robust. If you operate on the flat portion of the curve (ideally the center), you sacrifice peak optimization for robustness and stability over a wide range of conditions. The goal is to optimize as robustly as possible.
If the optimization is sensitive (i.e. the curve shows a hill with a sharp peak) it is not robust. The closer to flat the response, the more robust it is.
As others mentioned, parameters (moving average combo) are just one aspect of the optimization process.
There are many books on this. A basic explanation is in turtle traders, by curtis faith. Most modern trading systems books talk about this. Or maybe pick up trading systems and optimization from pardo.
The basic idea is borrows from engineering design.
If you designed a rocket that shows perfect low pressure and comfort orbiting around earth, it has been optimized. Maybe you take it to mars and it explodes, because the pressure was much higher than you expected; it was not robust.
