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SYSTEM DESIGN
The Siren Call Of
Optimized Trading Systems
by Dennis Meyers, Ph.D.
Today's software for trading systems can take you down some dangerous paths. Here's how to avoid one mistake.
"With the advent of today's high-performance desktop computers and software as well as the availability and cheapness of historical data, trading systems are more prevalent than ever. These systems usually hold out the promise, either implicitly or explicitly, of assured trading rewards. The majority of the trading systems being offered to the trader today are presented with hypothetical track records showing the excellent profitability and performance that could have been obtained by using that system."
With the anecdotal method, it's easy
to portray a system as holding the
promise of future profitability,
because this method only shows those
examples carefully chosen from the
past that produce positive results!
Figure 3A: Mystery price series. Here are the charts of the mystery price series with all the buy and sell signals from the trade-by-trade summary of Figure 2 indicated. Many of the buy and sell signals were picture perfect, selling very near exact tops and buying very near exact bottoms.
"Figures 3A and 3B present the charts of the mystery price series with all the buy and sell signals from the trade-by-trade summary of Figure 2 indicated on the charts. Many of the buy and sell signals were picture perfect, selling very near exact tops and buying very near exact bottoms."
"The mystery system is quite simple and used quite often by many people. The system is based on J. Welles Wilder's relative strength index (RSI). RSI has three parameters: the RSI length, the RSI buy zone and the RSI sell zone."
Excerpted from an article originally published in the October 1996 issue of Technical Analysis of STOCKS & COMMODITIES magazine.
© Copyright 1996, Technical Analysis, Inc. All rights reserved.
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