Interesting blog post on moving averages by Jonathan Evans

Jonathan Evans INVESTOR

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I found this article pretty interesting. I think this note on how to approach backtesting results is spot on. I personally have found myself susceptible to wishful thinking and confirmation bias, especially when potential profits are concerned.

I just want to emphasize at this point that the job of every serious trading system developer is not to try to find support for the result of a backtest but instead to try to discredit it. Unfortunately, exactly the opposite happens in most publications. For example, varying the moving averages and claiming that because the system remains profitable it is robust, is not enough.

http://www.priceactionlab.com/Blog/2015/07/asset-allocation-models/

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Jonathan Evans

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Michael Handschuh

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Wonderful read @Jonathan! I love the comparison with a completely randomized strategy. We all find ourselves susceptible to confirmation bias now and again, but it's important to perform due diligence and find the flaws in any strategy. Moving average strategies tend to perform well over the symbol/range that they were backtested on (overfitting), but typically fall very short of expectations when thrown into the wild (live) or run on a different symbol/range (maybe even same sector).

Thanks for sharing!

Jonathan Evans

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Yeah. I feel like this might be obvious for a lot of the proper quants or financial engineers on here, but I'm a software engineer with a hacker mentality. My development process is:

Tweak and run -> Tweak and run -> Success! Deploy to production!

That mostly works in software, but it's a really bad idea for algo trading. ;)

Jonathan Evans INVESTOR

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