Testing and Tuning Market Trading Systems: Algorithms in C++

© Timothy Masters 2018

Timothy MastersTesting and Tuning Market Trading Systemshttps://doi.org/10.1007/978-1-4842-4173-8_5

5. Estimating Future Performance I: Unbiased Trade Simulation

Timothy Masters¹ 

(1)

Ithaca, NY, USA

 

The title of this chapter is optimistic, perhaps shamefully so. Financial markets are notoriously fickle. They are nonstationary (their statistical properties change over time), vulnerable to unforeseeable outside shocks, polluted by occasional wild swings for no apparent reason, and generally uncooperative. The idea that we can actually estimate the future performance of a trading system to any great degree is ludicrous. But what we often accomplish is to identify trading systems that have a painfully small expected future return, ...