The Evil Results of Our Filtered System

Aug. 23, 2024

This week we’re doing something evil.

Even though smart traders told us never to optimize or use a filter (which is mini-optimizing), we did it anyway.

We’re stupid enough to think that a small tweak to a sound system doesn’t turn profit into loss.

We never learn.

Nonetheless, we’re trying to buy the ES Futures contract on Monday at 12 pm ET and go for a small profit target (1.5x the current ATR, length 14). We also want the upward bias to have room to work, so our stoploss is 12x the ATR. And we’ll get out on Wednesday if nothing has finished up.

Doing that lead to this Curve from 1997 to 2024 trading 1 contract each time:

However, we think a small filter might help. And we know that hundreds of different small tweaks all produce profit.

So let’s do this one.

If the highest high in the past 10 bars happened more recently than the lowest high, it’s too volatile. We won’t trade that day.

We want to trade when things are calmer.

Will this cut down the number of trades? Absolutely.

Will it make it better?

Here’s the Curve:

It looks like trading the exact same thing when it’s a little calmer makes our trading a little better.

Did it turn a good strategy into a bad one?

Have we over-optimized?

Have we ruined everything?

I would say no.

What would you say?

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.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.