Walk Forward Analysis

Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.
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bluefightingcat
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Walk Forward Analysis

Post by bluefightingcat » Fri Mar 11, 2016 8:24 am

I've been doing some reading about walk forward analysis. I think I have understood the principal behind it but I thought I would come here to get confirmation on whether I have understood everything properly.

1. The principal behind walk forward analysis is to see whether a system can be more profitable if the system is regularly re-optimized compared to just being optimized once. Is this correct?

2. Is it better to have a robust system that has been tested over a long test window (say 20 years) with lots of instruments and trades and then validated on OOS window (say 5 years) or would it be better to have a system that is regularly re-optimized at a regular time period or once the equity curve starts going south using a smaller data set that is more similar to the current market conditions?

3. In walk-forward analysis, the test period is divided into segments. The first segment is tested and then validated in OOS data. Then we move on to the next segment, until all segmens have been tested. Couldn't I just skip all the segments in the beginning and then just test and validate the last segment and use the parameters from that one? I'm don't understand the link between the different segments.

Tim Arnold
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Re: Walk Forward Analysis

Post by Tim Arnold » Fri Mar 11, 2016 3:50 pm

1. I'm sure there are different thoughts on that. You can test a regular re optimization strategy with the walk forward feature.
2. You could test both and see how the historical results look. Lots of variables and opinions involved in the correlation between historical results and future results. Much depends on how the system was conceived and how the optimization process is conducted.
3. This is a historical test of the walk forward process over time. If you had optimized every x days. Going forward from today you can just use the last set of parameters.

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