Parameter Setting

"Seek the parameter settings
that give you the best possible results."

The parameter settings that will give you the best possible test results will most probably be linked to 'price spikes'. Use of parameters relating to these spikes involves what is known as curve fitting.

Curve fitting is one of the most common mistakes made by inexperienced traders, when setting up systems. It is often done inadvertently.

In curve fitting, system settings are fitted to the price history data in a way that produces 'best results'.

Because market price movements never repeat themselves, the parameter settings that gave the best results in the past will not be the same ones that will do so in future. Curve fitting works against you by creating unrealistic expectations.

In developing the methods they use, professional commodity traders concentrate on the 'general case' - the normal, the average.

They are looking for what usually happens in the markets and avoid what is exceptional. For example:

• They will trade every market they can that is unexceptional.
• Their system rules are general - the same rules for all markets - no exceptions.
• Their parameters are the common frequency case - unexceptional.

General markets - general rules - general parameters is the order of the day with the successful commodity trader.

How do traders find these 'general' parameter values?

They do it by survey - surveying the whole landscape of possible parameters if you like.

The main obstacle in the way of making a 'survey' of parameters is that it requires so much work. This is partly a method problem and partly a software design problem.

The task of producing results covering a wide range of parameter values usually requires hundreds or thousands of complete history period tests.

This is usually well beyond the scope of private traders unless they have software designed to meet such demands. To be able to work efficiently, complete results for tests on this scale are required in minutes - rather than days.

Automatic step testing software is an essential requirement and so is a method of processing and reviewing large volume outputs. Individual private traders do not usually possess these resources, so they just 'pick something that seems to give good results'.

Seeking parameter settings that give best possible results is definitely not the correct thing for commodity traders to do.

Of course, experienced traders know that sometimes exceptional opportunities will come their way. They don't bank on this but when it occurs, they exploit the situation as fully as possible - but that's another story.

Private traders should study the methods employed by professional traders and also make themselves aware of new software and other resources available.

 

Modus Trading
Contact David

Copyright David Bromley 2006
All Rights Reserved.

 

 

 

 

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