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    ing parameters that are in the middle of a good cluster of results are likely to lead to more consistent results in the future.

    You will also want to make sure you have enough trades in the resulting test

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    You’ve probably read about the importance of having a trading plan. As part of the trading plan, you need to have a trading system in place. Without a system, you have no “map” to trade stocks by.

    One of the hidden dangers of system development is over-optimization. As part of your system development process you will be testing your system to see how well it has performed in the past. Some system development tools will let you quickly test thousands of combinations of system parameters in a short period of time.

    As you go about evaluating the profit and loss, drawdown and smoothness of the equity curve increase, you’re likely to focus on the one set of parameters that looks best. This is the first danger. It’s better to look for a cluster of superior results than for just one outstanding set of parameters. Choosing parameters that are in the middle of a good cluster of results are likely to lead to more consistent results in the future.

    You will also want to make sure you have enough trades in the resulting test

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    f the hidden dangers of system development is over-optimization. As part of your system development process you will be testing your system to see how well it has performed in the past. Some system development tools will let you quickly test thousands of combinations of system parameters in a short period of time.

    As you go about evaluating the profit and loss, drawdown and smoothness of the equity curve increase, you’re likely to focus on the one set of parameters that looks best. This is the first danger. It’s better to look for a cluster of superior results than for just one outstanding set of parameters. Choosing parameters that are in the middle of a good cluster of results are likely to lead to more consistent results in the future.

    You will also want to make sure you have enough trades in the resulting test

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    tools will let you quickly test thousands of combinations of system parameters in a short period of time.

    As you go about evaluating the profit and loss, drawdown and smoothness of the equity curve increase, you’re likely to focus on the one set of parameters that looks best. This is the first danger. It’s better to look for a cluster of superior results than for just one outstanding set of parameters. Choosing parameters that are in the middle of a good cluster of results are likely to lead to more consistent results in the future.

    You will also want to make sure you have enough trades in the resulting test

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    se, you’re likely to focus on the one set of parameters that looks best. This is the first danger. It’s better to look for a cluster of superior results than for just one outstanding set of parameters. Choosing parameters that are in the middle of a good cluster of results are likely to lead to more consistent results in the future.

    You will also want to make sure you have enough trades in the resulting test

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    ing parameters that are in the middle of a good cluster of results are likely to lead to more consistent results in the future.

    You will also want to make sure you have enough trades in the resulting test set so they’re statistically significant. It’s foolish to be confident in any system for which you have a track record with less than 30 trades during the chosen test period. You can have some confidence after you have more than 300 trades in the test period. This assumes you haven’t over-optimized those results.

    Even 300 trades don’t guarantee a reliable system. I have seen any number of over-optimized systems that do great for over 300 trades and then lose money forever after.

    One way to check your parameters is to hold back some of your historical data as a “test set.” The danger here is that if you use the test set more than once at the very end of your system development, you’re compromising the optimization. This is because your “test set” now has become part of the optimization procedure.

    Still, it’s

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