Milktrader

Iterating Until Convergence

Wednesday, June 24, 2009

50/200 cross in SP Futures

If someone were to buy and sell ES futures over the last 25 years based on the 50-day simple moving average crossing over the 200-day moving average, what kind of results would they get?

Below is a table that represents the statistics of this simple trade:



Now if we were to optimize the parameter set and run permutations, would the results improve with different parameter sets?

I ran 112 permutations with the fast average ranging from 30 to 100 in steps of 10 and the slow moving average ranging from 120 to 250 in steps of 10.

Next I plotted the slow average against the fast average and then used Net Profit as the third axis. This yielded an optimization space that is depicted below:




Below is the optimization space based on the Pessimistic Return on Margin objective function. Notice that the 50/200 cross stands atop a lonely hill that represents a local maxima, but not the global maxima.
Posted by Milk Trader at 8:10 PM
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4 comments:

  1. Good stuff milk.
    What did you use to plot your 3D optimizations?
    ReplyDelete
  2. The 3D graph is generated with an Excel macro that is available from TradersStudio for about $70.

    Its utility is in visually showing whether a maxima has like-minded neighbors (good) or if it has no similarly profitable neighbors (not good).

    A lonely peak is likely the product of chance and does not represent a good trading system, as the chance of having the same result in the future is slim.
    ReplyDelete
  3. My partner uses TraderStudio, but I don't think he has the excel plugin. I use AmiBroker to generate very similar 3D optimizations.

    Yes, the spikes are to be avoided when evaluating system.
    ReplyDelete
  4. I prefer the standard contour plot in excel which gives a better idea of the stability of the performance around optimal parameter settings.

    sc
    ReplyDelete

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