All posts by Michael Harris

Fooled by Randomness Through Selection Bias

— By Michael Harris, Price Action Lab There are software programs for traders that use some process that combines indicators with exit conditions for the purpose of designing systems that fulfill desired performance criteria and risk/reward objectives. In general and due to data-mining bias it is very difficult to differentiate the random systems from those that may possess some intelligence in pairing their […]

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Fooled by Monte Carlo Analysis

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–by  Michael Harris from Price Action Lab Simple Monte Carlo analysis tools are often used to assess the risks of trading systems and to determine appropriate capitalization levels. However, simple trade reshuffling algorithms can produce misleading results in many cases and fool their users. There are several Monte Carlo analysis tools available to traders. Some of these […]

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Deterministic Machine Design of Trading Systems With Strict Cross-Validation

— by Michael Harris from Price Action Blog. A high win rate trading system for SPY was machined designed using a deterministic method and a simple predictor of price. Cross-validation of in-sample results was performed on out-of-samples of SPY and of an anti-correlated security. The results show that high win rate trading systems with appropriate risk:reward ratio can […]

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Curve-Fitting and Optimization

– Michael Harris, Price Action Lab Blog The subject of optimization and curve-fitting has received a lot of attention by trading system developers, especially during the last 10 years. There is a lot of confusion about this subject and different views, some even conflicting. There are those who claim that optimization and curve-fitting are unavoidable and necessary […]

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Win Rate: The Most Important Performance Measure

– Michael Harris, Price Action Lab Blog Shortly after my post on Kelly maximization I received a number of emails from traders who are developing systems but are, understandably so in my opinion, a bit confused about which performance criterion or criteria to use when evaluating them. I understand why those traders are confused, or to be […]

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Long/Short Symmetry Effect on Trading System Performance

– Michael Harris, Price Action Lab Blog Although some quants prefer long/short symmetric trading systems, there is no conclusive evidence that they offer any advantages, especially when dealing with markets with a structural bias. In this blog post I present two examples of the performance of trading systems that were machine designed last year. There are at least two […]

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Account Undercapitalization is the Primary Cause For Trader Failures

— By Michael Harris, Price Action Lab About 11 years ago, I gave a presentation in a conference in New York City as an invited speaker. The audience was mostly comprised of inexperienced traders. A good part of my presentation was on the subject of risk of ruin and proper account capitalization. After I explained what consecutive losers are, how they […]

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