Filtering Trade Signals
Posted: Wed Feb 25, 2009 7:52 pm
I have been playing with the TMA system and applying various filters such as correlation and unit quantities. Obviously the system can be improved by tightening or loosening the various filters to allow more trades through. I was wondering how other people normally handle this tradeoff? Do they simply go for that which maximises their objective function be that return or MAR or are there other factors at play? In my case the best result (MAR) is achieved by the tightest filter which knocks out about 30% of all trades. But then a test with a filter knocking out about 10-15% of trades isnt soo much worse..I wonder whether knocking out so many trades in a LTTF system doesnt mean I miss so many wonderful trades....the results seem to suggest not but then maybe..I dont know.
Second part of my question is do many people then go to the next step and try to rank the quality of the signals that are filtered out versus those that have already been accepted? e.g with a correlation filter do we compare the filtered trade to an existing correlated trade that has been on for say 50% of its "normal" trade life and chose to remain or replace as the case may be....is there any evidence to suggest this kind of approach is useful.
Thanks Jim
Second part of my question is do many people then go to the next step and try to rank the quality of the signals that are filtered out versus those that have already been accepted? e.g with a correlation filter do we compare the filtered trade to an existing correlated trade that has been on for say 50% of its "normal" trade life and chose to remain or replace as the case may be....is there any evidence to suggest this kind of approach is useful.
Thanks Jim