Ultimate Algorithmic Trading System

TABLE 8.3
In-Sample Testing TA2
Le Se Lx Sx Begin Date End Date Bars Profit Max DD
20 20 12 10 2001/09/18–2005/06/15 975 24, 843.75 −9, 187.50
20 20 12 10 2002/10/11–2006/07/07 975 28, 375.00 −9, 187.50
20 20 16 10 2003/09/05–2007/06/27 975 23, 687.50 −8, 093.75
20 24 12 12 2004/10/04–2008/06/26 975 6, 437.50 −8, 343.75
20 20 12 14 2005/08/16–2009/04/07 975 18, 531.25 −11, 906.25
20 36 10 14 2006/08/15–2010/06/04 975 11, 843.75 −13, 843.75
20 20 12 14 2007/09/20–2011/04/18 975 21, 531.25 −13, 187.50
20 24 12 14 2008/07/17–2012/04/06 975 22, 375.00 −17, 656.25
20 56 10 14 2009/06/23–2013/03/27 975 8, 250.00 −15, 375.00
24 24 12 14 2010/09/03–2014/04/04 975 18, 187.50 −17, 656.25
184, 062.50
Table 8.3 shows the best parameter sets over a four-year period carried one year
forward sequentially. Row 1 starts with September 2001 and ends on June 15,
2005. The best-performing parameters were selected over that time period and
displayed. Row 2 starts a year later in October 2002 and ends in July 2006, and
the best parameters are also shown. The process is continued through April 2014.
The results are spectacular, but beware of the benefit of hindsight. Notice how the
Le, Lx, and Sx parameters stayed somewhat consistent; this does demonstrate
parameter stability. The Se parameter was all over the map, and you can see that the
system did not want to sell short between June 2009 and March 2013; the sell entry
utilized a whopping 56 days in its calculation. Figure 8.6 is a graphic representation
of how the analysis rolls forward.
Out-Of-Sample Testing When you run a WFO, the software builds a database of
these ‘‘best’’ parameter sets and then informs the algorithm when to adopt and when
to abandon them. TradeStation’s WFO keeps track of all parameter switching and
performance metrics on the trading algorithm as it progresses through the history of
whatever you are testing.
The whole purpose of this software and this type of testing is based on the belief
of optimization overhang or carryover; if a parameter has done well for the past four
251
GENETIC OPTIMIZATION, WALK FORWARD
2001 2002 2003 2004
2002 2003 2004 2005
2003 2004 2005 2006
FIGURE 8.6
A graphic representation of how the walk-forward analysis (WFA) rolls forward.
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