Is Optimizing Evil?

Aug. 19, 2024

I read two trading books last weekend by the same author.

If they’re good and the author knows what he/she’s talking about, I still love trading books.

And these were definitely good ones.

Except for a couple of things.

One, the author said that all traders have to use the Python programming language.

Yikes.

Learning Python can take months or even years (2-6 months is the average). And that’s just to get a fundamental understanding. That doesn’t mean you’ll be able to code a basic strategy after all that time.

The heaviest weight in the gym is the front door and, I submit, the biggest reason traders don’t use automated strategies is the idea of not being able to code anything for months on end.

So making people use Python isn’t great.

The other problem is the author’s idea on optimizing.

And I quote, “Optimisations are plain and simple evil and out to kill you, and if you ever catch one stomp on it hard and make sure it does not get away.”

Yikes times two.

There a lot of people out there, smart people, that swear this quote is true.

And it puzzles me.

Granted, most people don’t bother to learn how to safely optimize and internet marketing one-year optimizations are garbage.

But no optimizing? At all?

I respectfully disagree.

The key is to not optimize something that’s random or clearly doesn’t work.

For example, let’s say I think that going Short on the ES Futures contract is a good idea (mostly because I just read fourteen articles on how overbought the stock market is and I know all those articles are true).

And I also like moving averages, so I make a rule that I’m going to Short when the ES closes below the 11-day simple moving average. Eleven is my favorite number so I thought ES would like it. I’ll exit when it closes back up the moving average.

I’m a genius. I’m Michael Burry, Jr.

So I coded it up (not using Python) and here’s the Equity Curve since 1997:

That is a certified dumpster fire.

Should I optimize it? What do you think?

[waiting…]

Of course not.

Taking an idea like that and optimizing the moving average or the days of the week or the syncing it with the Madagascar Butter Index until it produces profit is indeed evil.

But what if we would like to participate in the upward bias of the stock market but don’t want to just buy-and-hold like a brain-dead mannequin?

And to do so, we’d like to Buy on Monday at noon and go for a small profit target with a big stoploss to allow the upward bias to do its thing. We won’t hold too long. We’ll be out before Friday closes, thereby keeping us safe from wild weekend drops like we saw not too long ago.

Am I a genius?

Here’s the Curve since 1997 on the ES.D 15-minute chart:

While I’m not a genius, this definitely works.

It doesn’t work when the stock market is bearish, but it works like crazy when the market is bullish.

Look at what it’s done since 2019 trading 1 contract each time and imagine trading it on a hypothetical $15k account:

That’s pretty amazing.

So, we could leave it alone and just trust our initial idea.

But…

Couldn’t we take this good idea and just tweak it a little?

Would refining something that already works ruin everything?

Does that even make sense?

No.

A few minor tweaks to a good idea can’t turn it into a bad idea.

Can it?

We’ll try to find out in the upcoming Newsletters.

Talk to you soon.

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It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

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