“How to avoid curve fitting using independent testing” - Jeff Swanson

Jeff Swanson from EasyLanguageMastery discusses how to avoid curve fitting your trading strategies using the "independent testing" technique, including:
• The things traders do that cause curvefitting,
• Is curvefitting a trading strategy really that bad?
• Independent testing and why you should use it when developing trading strategies,
• How to do independent testing of filters and using optimization to judge filter consistency,
• Testing combinations of filters and why you should look to remove
• Plus, types of filters to test, where to get trading ideas, how long to test a trading idea, when to switch strategies off, combining filters, tweaking a strategy and much more!
► You can discover more from Jeff at easylanguagemastery.com
** NOTE: Some of the audio in the video recording was distorted, if it’s too distracting try the clean audio version at the top of the page at bettersystemtrader.com/196, it’s much better! **
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** Timestamps **
00:00 Warming up with some tunes
01:10 Trading background
04:28 The things traders do that cause curvefitting
06:51 Is curvefitting a trading strategy really that bad?
08:09 What is independent testing and why is important?
10:26 Types of filters to test
12:10 How to do independent testing of filters
17:10 Where to get trading ideas to test
18:46 Leading indicators and filters
19:50 How many filters is too many?
21:50 Using optimization to judge filter consistency
27:04 Testing combinations of filters
33:15 Permutation of price data
34:00 Testing filters with exits
36:06 Imperfect backtests and data
38:44 How to identify drawdown or broken strategy
40:45 Switching strategies on and off
42:00 The entire strategy development process
454:50 Keeping track of trading research
47:31 Testing ideas on similar symbols
48:15 How long to test a trading idea
51:30 Tweaking a strategy when the market changes
53:15 How to discover more from Jeff
🎓🎓🎓 MORE TRADING EDUCATION & CONTENT 🎓🎓🎓
► Better System Trader website: bettersystemtrader.com
► Interviews With Pro Traders: interviewswithprotraders.com
► Smashing False Breakouts: smashingfalsebreakouts.com
► Trading Market Internals: tradingmarketinternals.com
► DPS Trading Technique: dpstradingtechnique.com
Disclaimer:
Trading in the financial markets involves a substantial risk of loss and is not suitable for everyone. All content produced by Better System Trader is for informational or educational purposes only and does not constitute trading or investment advice. Past performance is not necessarily indicative of future results.

[@BetterSystemTraderPodcast]

What was your #1 takeaway from my chat with Jeff? Let me know in the comments below.

[@davidmuldowney1]

My #1 takeaway: a strategy doesn't need to be perfect, just needs to be productive. Don't get hung up on perfecting a single strategy, that will drive you bonkers. Just make it good enough, accept some flaws and move on to the next one.

[@BetterSystemTraderPodcast]

@@davidmuldowney1 - good takeaway, thanks for sharing

[@hugh2200]

Andrew, YOU and Jeff, are the most generous at sharing knowledge on your websites!

[@BetterSystemTraderPodcast]

cheers @Hugh

[@EasyLanguageMastery]

Thanks Hugh!

[@BetterSystemTraderPodcast]

apologies for the poor audio, will get that fixed for the next one! NOTE: Some of the audio in the video recording was distorted, if it’s too distracting try the clean audio version at the top of the page at bettersystemtrader.com/196, it’s much better!

[@BetterSystemTraderPodcast]

_"Traders get too hung up on making the perfect looking backtest but the reality is a backtest is nothing more than a rough estimate. It's not reality."_ - Jeff Swanson

[@MrA1wizard]

Totally agree that all Algo trading is curve fitting but the danger is with over fitting

[@BetterSystemTraderPodcast]

thanks for the comment A1

[@mytube99]

Hi Andrew. Can you please bring Keith MC Cullough from Hedgeye on for an Interview. Would love to hear an interview with him from you

[@BetterSystemTraderPodcast]

hi @stefan, thanks for the suggestion, will look into it

[@OneCreator87]

There are no "perfect" systems, but there are surely "better than" stuff out there.

[@mathmobile4606]

Nnfx is market data torture 🤧