Thoughts on how to avoid curvefitting

jebus89 · Fri, 22 Feb 2019 08:19:58 +0000

So from reading, studying, testing and creating algorithms i have a couple of tips to bring to the forum. As every post i make regardig “how to ..” my opinions on things, are based on my own experiences and thoughts from what i have read in books and heard from listening to podcasts. So how can we create stuff that is not curvefit to the point of just breaking when put into live? Never optimize on all of your data Put it in demo to see that it is in fact doing what it is supposed to do. Patience is key. You are trying to find patterns within the chart/data, make sure that the pattern you’re trying to trade, is in fact a pattern that happens again and again and again. If your trying to “buy the dip” then you should basically buy every dip you can find in the chart. if you’re only buying the dips that go in your favor, then im gonna guess that you have “picked out” the very best trades from optimizing aka you have curvefit your algo too hard and suddenly the code is not buying the pattern you want in the future, but rather backtest is just picking out the best dips that have happened in history, future dips will look different tho, so make sure your algo is not too spesific and fit to the data. So what does this mean? Well it means that your code shouldn’t be looking “too good”, do not aim for perfection, aim for robustness. If you manage to buy “every dip” and your still profitable but with less win%, then i would trust the “buy every dip” code rather then a 90% win rate dip-buying code. Don’t make codes trying to be exact and perfect, make systems that are easy. Easy to explain, easy to show and easy to code. One of my favorite quotes from trading are (and as always im paraphrasing) “Make sure your code doesn’t fit like a glove, it should fit like a mitten. More wiggle room for the price, more chance for failure, but also more robust when it comes to new data” My best algos to todays date are in fact my “loosest” ones. The ones with less code, the ones with a “loosely” defined exit (wiggle room) and the ones that do indeed get faked out here and there. My worst algos to todays date are the ones that have the most conditions, less wiggle room and more room for being stopped out JUST before the price bounces or what have you.. if you got 10 conditions with 10 different variables for trying to buy a dip, then it sounds like the code is trying to find exact same patterns as backtest, rather then just trying to buy a dip. Dosnt mean it wont work, but i would feel better having only 5 conditions even if it means reducing my win rate or even profit. Remember that “buying dips” (mean reverting) or buying a breakout (momentum) can be measured using 100 different indicators, but that dosnt mean you should include 50 of them, 1 or 2 might do the trick. When i started out there was one thing i just could not get out of my head, and it has really bothered me to this day: Does indicators work? Should you focus only on “higher highs and lower lows”? What indicators work? What does not work? how can i know? For me at least, these questions have finally been answered: I have listened to hundreds of podcasts episodes that includes great pro and amateur traders that talk about their own strategies. I have read many books on the subject as well. I have heard about people using only the bollingerbands (combined with price action) and i have heard about others using only the RSI (combined with price action), i have read about people using both the RSI and Bollingerbands combined. I have read about people that swear that no indicators work, only price action can tell you where price might go. Ive listened to experts claiming that if you do not have multiple time frames in your code you cannot be successful, ive read about experts saying that if you do not have a dynamic code, or loads of decision trees, then you cannot be successful. Some say stop loss is key, others say stop loss sucks. Some use trailing stops, some dont. Some use profit targets, others dont. The final conclusion for me is that everything can work, if you know how to work it. Indicators can work, people use them and are making profits, i use them and im making profits. Pure price action can work, people use them and are making profits, i use them and im making profits Combination of both price and indicators can work. Decision trees can work. Multiple timeframes combined with indicators and combined with price can work. Stop losses are great and stop losses can be your worst enemy. Honestly i think that everything can work, if used correctly. These are all tools to create a strategy that is profitable. What makes a tool great for you, is knowing the “how, why and when” to use it. Not every tool fits every person and trading style. It comes down to you and your personality. Even tho it sounds cliche, mean reversion isnt for everyone, same with momentum strategies. Some do great on mean reverting strategies, others dont. They just dont seem to “get it”. Keep working at it tho and you will see the light eventually.

This topic has 35 replies, 9 voices, and was last updated 4 years ago by zilliq.

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04/09/2019 at 12:48 PM #95813

Finning

Hi GraHal,

I see that you have had some reporting issues with the current version of PRT. Is this your main gripe with the system?

I also read somewhere of the issues with systems stopping for no reason? Is that – or other execution issues not more of a concern?

I’m not clever enough to code up many / dozens of concurrent conditions using sets ups /Price bar patterns.

Don’t be worried about anything just yet – you may well be clever enough to know that simpler is better??

Probably a good analogy of what I’m doing is to code in a system similar what you described in you link – multiple longs/shorts based off a single indicator.

I think multiple OK looking systems is the way to go too. I’m just trying to have multiple OK systems for a single market in a single system and execute them all under one banner.

Just trying to get to a stage to go live – and see if this idea is the right idea??

Cheers

Finning

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04/09/2019 at 2:13 PM #95833

GraHal

Finning wrote:

Is that – or other execution issues not more of a concern?

There are lots and it’s not as if – without double / treble checking – that we can even trust the figures that Forward Test provides … read the link below.

GraHal wrote:

Just going through my Systems on the AutoTrading screen … at times it’s as if a gremlin / a fairy has got in there and has changed the figures!?

Finning wrote:

Just trying to get to a stage to go live – and see if this idea is the right idea??

Try doing a Live Trial … as in choose what you consider your best / most robust 2 or 3 Systems and pretend to go live from a certain date (1st Monday in a month is good!?).

Then after a few weeks pat yourself on the back that you didn’t go live after all and think of the money you haven’t lost!? 🙂 🙂

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04/09/2019 at 2:44 PM #95849

GraHal

Finning wrote:

I’m just trying to have multiple OK systems for a single market in a single system and execute them all under one banner.

I cant really see an advantage over multiple systems? Maybe I am missing something?

Would you have a limit of ONE trade open?
Or multiple trades as each condition triggered?

What about the risk of an ‘IG Server / external event’ closing the Strategy / all trades?

GraHal
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04/09/2019 at 3:51 PM #95853

GraHal

Hey, I sat in the garden and thought of maybe a good idea??

Let’s suppose you do only want 1 trade open at any one time (low funds + margin etc) but you have 5 robust strategies proven through Forward Test etc.

So rate the strategies 1 – 5 with 5 being the most robust. Include rating in the code.

Then combine all 5 strategies under one banner (as you say Finning).

Run the combo-System but have as a condition that if a higher rated strategy triggers when a lower rated strategy is open then the lower rated strategy is closed on the same bar as the higher rated opens.

So 3 open, 4 triggers so 3 closes and 4 opens … result only 1 trade open at any one time (most robust strategy) but all 5 strategies are out there in play trying to make you a buck!?

Would be worth trying … if 3 is open and positionperf > 0 then 3 closes and 4 opens etc.

Just thoughts / ideas? 🙂

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04/09/2019 at 4:23 PM #95860

Vonasi

We’ve all discussed something similar before.

https://www.prorealcode.com/topic/multiple-strategies-within-one-trading-system/#post-41278

and here:

https://www.prorealcode.com/topic/multiple-strategies-in-one-strategy/

In the first link RobertoGozzi wrote the bones of a strategy that will run 1 of any number of strategies at a time. The way he coded it meant that the higher a strategy was in the code the higher priority it had over the others.

It wouldn’t be too hard to adjust it to close trades if another strategy had a trade on but I think this might just be a very efficient way to lose money!

EDIT: The links don’t work. For some reason the first link has a history of problems and now my second link has caught the bug! If you cut and paste them in your browser bar they should work though.

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GraHal

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05/19/2020 at 4:42 PM #132303

zilliq

Hi @jebus89

Hi

Didn’t see we post quite the same post at some months/years of difference 😉 Very interesting topic I find

Completely agree with your analysis : Less parameters, very long period of analysis, WF to test robustess …

See U

zilliq
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Thoughts on how to avoid curvefitting

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