In-Sample and Out-Of-Sample Testing

I am frequently asked if I do out-of-sample testing. The short answer is not always and when I do, it is not how most people do the test. There are lots of considerations and pitfalls to avoid when doing out-of-sample testing. Out-of-sample testing is not the panacea it is made out to be. There are […]

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Discover Best Trading Rules with Perceptron Search

Every system developer has a list of rules and indicators that they want to test out. The problem every developer faces is narrowing down that list of rules and indicators to the select few that are best worth focusing on. A quite similar and related problem that every developer has to deal with is having some inputs or […]

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Are Breakeven Stops Worth The Effort?

One favorite “gotta have” of many traders is a breakeven stop. By not letting a winning trade become a loser, the psychological lure of breakeven stops is strong. This is especially true for discretionary traders, where the winning percentage can play an important mental (not necessarily financial) role. The answer for automated traders may be […]

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Predictive Indicators

INTRODUCTION Technical traders understand that indicators need to smooth market data to be useful, and that smoothing introduces lag as an unwanted side effect. We also know that the market is fractal; a daily interval chart looks just like a weekly, monthly, or intraday chart. What may not be quite as obvious is that as […]

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Multiplex For Greater Profit

Two problems that often result from system optimization are, (1) a reduction in the number of trades, a system that generates too few trades can both be more difficult to trade and a low number of trades does not inspire confidence; and (2) there is a selectivity or specialization risk that, by sheer bad luck, […]

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Seasonality in the Bond Market? You Bet!

For those who are willing to see it, there is strong evidence that reasonably persistent seasonal trends exist in the stock market (see here, here, and here). But what about the bond market? Do seasonal trends exist there? Consider the following and decide for yourself. Junk vs. GNMA “Junk” bonds (more tactfully referred to as […]

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Using Metals to Trade Bonds

Sometimes things in the financial markets are pretty obvious if one is willing to see them.  Despite all of the angst that has been exhausted since July of 2016 – when the S&P 500 Index broke out to a new all-time high – regarding the 2016 election, the economy, interest rates and the “ultimate” effect […]

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MCVI Indicator and Strategy on Daily Charts

A while back we posted an article called, “Modified Chartmill Value Indicator“, the author presented an indicator that might prove helpful in your trading. The indicator is an oscillator which highlights overbought and oversold conditions. The author created a simple test strategy to test the effectiveness of the strategy. The results looked promising and you […]

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Open Up!

This is kind of a weird one. I was mulling over the question of what happens when the market opens up, i.e. above its previous close. Is the day likely to be an up day? A down day? I got out of my data and started poking around. I looked at all “open-up” days with […]

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Back to Basics Part 3: Backtesting in Algorithmic Trading

Nearly all research related to algorithmic trading is empirical in nature. That is, it is based on observations and experience. This is in contrast with theoretical research which is based on assumptions, logic, and a mathematical framework. Often, we start with a theoretical approach (for example, a time-series model that we assume describes the process […]

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