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Systematic Trading: A unique new method for designing trading and investing systems by Robert Carver

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Chapter Three. Fitting

Staunch Systems Trader

This entire chapter is about using data to create the trading rules used by staunch systematic traders. It is not necessary reading if you are going to use my framework to make discretionary forecasts as a semi-automatic trader or without any rules at all as an asset allocating investor.

A decision to run a systematic trading system means you have to select one or more trading rules and discard others as being unworthy. This process is often called fitting. Given our human tendency to be overconfident this procedure is fraught with danger. You need to beware of over-fitting:40 selecting a set of trading rules that fit past data too well and which are unlikely to make money in the future.

Chapter ...

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