Parameterless Trading Models

A portfolio managing director that I used to piece of job for similar to pronounce that his trading models convey "no complimentary parameters". As is customary inwards our secretive industry, he would non elaborate farther on his technique.

Lately, I get to empathise what a trading model amongst no complimentary parameter means. It doesn't hateful that it does non incorporate whatever lookback menses for calculating trends, or thresholds for entry or exit. I recall that would hold upward impossible. It merely agency that all such parameters are dynamically optimized inwards a moving lookback window. This way, if you lot ask: "Does the model convey a fixed net turn a profit cap?", the trader tin honestly reply: "No, net turn a profit cap is non an input parameter. It is determined yesteryear the model itself."

The wages of a parameterless trading model is that it minimizes the danger of overfitting the model to multiple input parameters. (The so-called "data-snooping bias".) So the backtest functioning should hold upward much closer to the actual frontwards performance.

Now, it is quite computationally challenging to optimize all these parameters just-in-time for your side yesteryear side order, but it is oft fifty-fifty to a greater extent than hard to produce that inwards a backtest, given that a multidimensional optimization demand to hold upward performed for each historical bar. As a result, I personally convey seldom traded parameterless models, until I buy the farm to interrogation my regime-switching model. That model is nearly parameterless (I left out a few parameters from optimization because of a lack of time, non because of whatever technical difficulties).

The argue backtest optimization tin at in 1 lawsuit hold upward done inside a few minutes is due to my utilization of Alphacet Discovery's server-based optimization engine. There may hold upward other optimization software out at that spot that performs similar functions efficiently -- I welcome comments from the reader.