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Steve Mayo

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Subject : RE: 28 days of October - Part 2
Posted : 12/2/2014 6:13 PM
Post #34573 - In reply to #34567

My point is that we need to not think of the equity curve as anything more than ONE SPECIFIC SAMPLE of the potential performance for a system. It tells us very little about the RANGE of results we might get in actual trading.

Conversely, a distribution graph...which is sort of what we are doing with your rolling returns experiment (although that's still a bit flawed due to its repetition of the mid-period results), gives a much better estimate of what to expect in the future. It shows an historic range, and that's really what you want to know, although there still is no guarantee that history will be repeated.

Is there variability in results when you change the parameters. Absolutely! But aren't we better off knowing what that variability is rather than falsely thinking one set of metrics (CAR, MDD, Calmar, etc.) is really what we are going to get in the future?

As Steve Fox points out, the results in OV are impacted by a lot of different factors, not just start/stop date. That is why I keep stressing that looking at short periods of time is risky. You need lots of trading history to get a good representative sampling of the potential returns.

The market does show some covariance from one day to the next and that's why a system like PW/PB or OT that frequently re-optimizes does seem useful for improving short-term returns...but you then have to test that dynamic system over a long(er) period. And, I agree, we really need PW/PB to run weekly as the predictability of a system drops quickly when you go out beyond a few days from the signal.
Deleting message 34573 : RE: 28 days of October - Part 2


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