Building a robust trading system
Every trader with an attitude dreams of a robot bringing not substantial but at least stable, stress-free (and preferably devoid of time investments) income. Developing such trading systems is not easy, and has much in common with the scientific research process. A trader, in fact, is trying to find and identify some market patterns so further price movement can be predicted. In the process of this "search" ("research" is essentially re(petitive)-search, starting to get it?), a trader has to make and proofcheck his assumptions, or, in scientific terms - put forward some hypotheses, then checking them on historical data to weed out false ones, and then allocating the capital. At this stage, mistakes often occur, usually stemming from not fully understanding the process, and as a result - receiving trading systems that show excellent results on historical data, but do not earn. At all. This article will try to provide an unbiased view on the problem of overfitting.