Let's trade using computer science!

Free Video course: How to prevent curve-fitting

And how to properly optimize trading systems

Curve-fitting is the most common mistake made by inexperienced algo-traders. This is because the MT4 based optimization is nothing else but pure curve-fitting.

Curve-fitting is a fancy name for cherry-picking (or ‘falsely’ connecting the dots), where you optimize your system using all possible combinations of all parameters and you select only the best results, the highest profits or the best looking equity charts.

This topic is so huge I can write a book about it. But let’s keep it very pragmatic for now. Because you are here to see some results. So, without going into details here is the approach that I use to keep cure-fitting minimized:

  1. Keep the number of optimized parameters as low as possible: each new parameter which is optimized adds an additional degree-of-freedom (or dimension), in which equity graph can be curve-fitted.
  2. Following the logic of point 1: avoid complex trading systems with many parameters and dependencies. Keep it simple!
  3. Split your historical data range in: ‘in-sample’ and ‘out-off-sample’ periods: the in-sample period is the longest period where you run your optimization. The out-of-sample period is the period where you will validate your settings after the optimization.
  4. Make sure you have sufficient amount of historical data. Note that you need at least 100 trades in your in-sample period, which is minimum required amount of trades needed for statistical significance. More is better.
  5. Optimize for profit-growth stability not for the maximum profit. In the end you need to see a straight equity line with stable increase over the whole testing period. (During optimization the ArrowHunterEa returns a custom ‘profit-factor’ in OnTester results column, which determines the stability of growth)
  6. Perform a robustness test on optimized parameter set. This can be done by manual ‘monte-carlo’ like simulation using the MT4 tester.

I know it is a lot of info in one post. That is why I have prepared a free video course for you with an real life example of strategy optimization.

Video I:

https://www.youtube.com/watch?v=XG9O0-RXzjE
Video II:

https://www.youtube.com/watch?v=DFWj7dLq-KQ
Video III:

https://www.youtube.com/watch?v=Rcc9ELW2WoQ

Greets!
Chris
www.coensio.com

 

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Short about me

Welcome to my Blog!

My name is Chris, I'm a Dutch engineer with Polish roots. By day I'm an engineer, forex trader and an internet entrepreneur, and by night I'm fighting internet crime;) I hope you will enjoy my website and my free MT4 software. Do not forget to check out my blog.
B.t.w: 'coensio' (Latin) = assessing, assessment, census, estimating, opinion, rating, taxing.

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