[cunparis]

I took a price pattern I was trading manually and programmed it into a strategy using tradestation. It doesn't use any indicators, just price & volume. I then ran the optimizer on it and had it find the optimal profit target and stop loss.

My strategy report has almost 1k trades over the past 2 years. The profit factor is 1.90. Drawdown is acceptable (less than 10% of the gross profit).

I'm curious if this is considered "curve fitting"? In the past I've written strategies using indicators and they worked for a month or two and then died. So now I'm focusing on price and volume and I'm avoiding indicators. But I still like to optimize for the target & stop loss.

Looking for experience here. Thanks.

[DugDug]

It could be argued any optimisation is curve fitting as part performance is never indicative of future performances.... etc;

I think by working out the averages, and best TP and stops then it just gives you an idea of what to expect. It seems all you have done is work out the best to expect.

However from what I have read, and learnt myself on the subject, I could suggest you look at the instances that constitute the outliers either side of the analysis, and try and work out what causes the bigger winners, and the losers. This might give you a better idea.

I am sure others will give more specific replies.

[cunparis]

Originally Posted by DugDug »

It could be argued any optimisation is curve fitting as part performance is never indicative of future performances.... etc;

I think by working out the averages, and best TP and stops then it just gives you an idea of what to expect. It seems all you have done is work out the best to expect.

However from what I have read, and learnt myself on the subject, I could suggest you look at the instances that constitute the outliers either side of the analysis, and try and work out what causes the bigger winners, and the losers. This might give you a better idea.

I am sure others will give more specific replies.

Hi, thank you for your reply. I agree about the past & future. I guess I am betting that it "won't stop tomorrow".

Yes, it's about what to expect on the target & stop side. The reason this could stop working is due to volatility. What if the moves get bigger and the stop is hit more often? or the volatility contracts and the moves get smaller and the target is not hit?

I've tried using range based targets and stops but I haven't found anything nearly as profitable as constant target and stop targets.

there aren't really any outliers. It either hits the target or the stop, so all the wins are the same size and all the losses are the same. that's what I like about it, it's really simple. I think I can do better trading the price pattern manually, mainly cause I can exit with a small profit instead of taking a loss, but I like the idea of automating it so that I can do discretionary trading with other methods.

[electroniclocal]

If you just optimised using $ values then you are getting an "average" OK value for the ranges of volatility during those 2 years.

If instead of using $ values, you used something else - not an indicator - so that the changes in volatility would not impact you, you would have something more robust.

[zapisy]

Any optimization is a curve fitting, if is done without forward testing.

Never base your profit target on fixed amount, because the bars range change every day, every month and every year - they are different in size.
By optimizing, you are trying to find best values, but those values may be on the edge of the bars, so simply speaking, is better to be out, than miss big profits,
when last bar range were big enough to take $1500 instead of $500.

You can add a condition, that if the possible profit factor is less than your stop * 2, then do not take the trade.

Luk

[cunparis]

Originally Posted by zapisy »

Any optimization is a curve fitting, if is done without forward testing.

Never base your profit target on fixed amount, because the bars range change every day, every month and every year - they are different in size.

I forward tested it like this: I reran the optimization up until 3 months ago. I then took these values and tested them for the next 3 months. Results were similar. in fact the optimal values for target & stop for the period up until 3 months ago and the period including the past 3 months are the same.

I'm optimizing with 1.5 years of data. Prior to that the optimal values are different. In mid-2007 the markets become more volatile.

can you suggest a way to not use fixed amounts? I've tried using percentages of the daily range but that did not work as well as the fixed amounts.

Thanks

[Kiwi]

It might be that the markets participants react to point moves rather than average ranges (which is one of the ways of making it more self-adaptive).

I've found that it is often better to know what is potentially "wrong" with your system and fix it as you go along. You might run a series of optimizations every two weeks and when you get significant variation you adjust your parameters (or something - perhaps you spend some time figuring out why it has changed).

[zapisy]

You can use the support and resistance as first exit.

Second exit you can make by taking w. average range for 100 days and multiple it by 1.5 or something like that if the stop is too small, and profit target multiply by 5. This way, the stop and profit will adopt to the changing market.