There are a ton of bums out there who who optomize a mechanical system and sell them (some that trade off of 1 and 5 minute charts!!). I am still seeing that same ads from the same system sellers I first saw in the early 90s...(David Wright from Canada is one)
Yes, not many novices understand this fact about optimizers and waste a lot of money on not just the systems, but also by trading them. That's one of the reasons for my post.
There are plenty of crappy systems out there, and lots of curve fitting is being done these days. However, it's also a good idea to point out that mechancal systems do work. If a system is robust, then it should work without too much optimization. But if you have such a robust system, you would want to optimize it as much as possible.
The original turtle trading system comes to mind here. It's a very basic system with good money management. It was an optimized (curve fitted) system...I think the key thing about the optimization is that it went long and short with the same rules, and the optimization was done over many futures markets. Curve fiting a system on only the S&P 500 for example will break down very quickly, but curve fitting over many diferent markets can show that there really are non-random chart patterns that can make you money.
William Eckhart (who was Richard Dennis' partner) believes that the time to exploit chart patterns will end in the next 10-20 years. I am seeing many of the simple systems go the way of the dinosaur (which is why many short-term systems have stopped working....now I'm looking at a longer time frame to help in this regard...it's tougher to move the markets over long and longer time-frames, which means you get stopped out a bit less).
When I first began trading solely on the basis of price and was much more concerned than I should have been about the academic orthodoxy that futures market price change was pure white noise--a random walk--I made the following notebook entry: "How can the aggregate of traders and users arbitrage out a potentially unlimited number of nonlinear relationships?" The implication was that they could not. Twenty-five years later, I am less confident about the continuing correctness of this answer. What I failed to take into consideration was the staggering explosion in information processing. This will only continue. Eventually artificial intelligence devices, superior to any human researcher, will effectively uncover all exploitable nonlinear relationships of price to price. Such relationships will be mined until technical analysis is no longer profitable. There is an irony in that dogmatic" random walk" theorists, dead wrong for a century, will turn out to have been prescient--futures markets will have been driven to randomness. The process has already begun.I feel these developments are nearly assured (assuming no disruption of civilization). What is less clear is whether this will happen as rapidly as I predict--in 10 to 20 years. In the meantime, profitable trading will only get harder as increasingly more astute traders pursue progressively weaker statistical regularities. This is why it is necessary for a CTA continually to improve just to hold his or her own. The only consolation I can offer is that there are profits to be made participating in this process of randomization.http://www.visoracle...andom-walk.html
In my own trading, I've had to stear away from breakouts. These systems
have been less and less profitable over the past few years. The turtle
system as it was doesn't make money anymore either. Ideas have to be
upgraded to keep up with the hedge fund guys who are data mining the
Edited by danzman, 02 August 2006 - 02:44 PM.
I don't make predictions, I just react.