December 16th, 2010, 12:57 pm
Hi,Starting a trading job soon, I'm looking for some theories to base my trading on. Background in statistics, so I have a built-in skepticism towards technical analysis in trading. My problem is that I will have even more problems using some sort of fundamental analysis to form a gut feeling for going long/short.Trying to setup up a trading rule based on technical analysis rules (moving average, oscillators or whatever), back-test and so on.... Seems to be the way to find a strategy.Problem is that testing enough rules, you will always find a rule that does well in a back-test. I'm aware of the data mining bias.How would you proceed? Would it make sence to test your strategy on different products/markets? Would be a rather strange coincidence if your trading strategy back-tests well in several markets?What is the strategies among people with sound statistical background? I just read "Evidence-based TA" by Aronson. He tests 6400 TA rules on SP500. With his data mining bias tests, he finds not one single TA rule with results significanlty better than a random rule.I understand that since a trading rule would have to give very good back-test performance to be able to be statistically significant in a data bias mining test among 6400 different TA rules. Even if you would have one super-rule that would give you 8% return on capital every year, you simply would not find it. And I don't expect to find a rule better than that./m