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[sharechat] Optimising Indicators in Metastock

From: Phaedrus <>
Date: Thu, 20 Jun 2002 15:25:20 -0700 (PDT)

  Pull up the chart of the stock you wish to backtest/optimise.
  Go into System Tester
  Click on New
  Under Enter Long, type       Cross(RSI(opt1),30)
  Under Close Long, type       Cross(70,RSI(opt1))
  Under Optimise enter    Min 5    Max 40    Step 1
  Click on Test.
  The system will then backtest and optimise RSI for the selected stock, 
marking buy/sell points on the chart. The optimum RSI value is found under 
Reports, along with the rest of the backtest results.

 Many people do not approve of optimisation, claiming that it is simply 
curve-fitting. I am a staunch advocate of it. I do not accept that the default 
values for various indicators should not be altered. Every stock has a 
different character, different volatility. Changing the period for any given 
indicator also enables you to vary its sensitivity, and thus its level of 
activity, so it can be tailored to your preferred investment 
style/timeframe/activity level.

 How many years to backtest? More is better. I would consider 2 years to be a 
minimum, with 5 OK, and 10 or more good. 

 It is possible to avoid the potential pitfall of curve-fitting by splitting 
your data into 2 equal periods. Optimise your system using the first period, 
then run the optimised results against the second period. If the first lot 
gives good results, and the secong lousy results, you've been curve-fitting. If 
the second gives reasonable results, you have the makings of a good system. 

 Do be aware that you can optimise for whatever you want, eg :-
Maximum profit.
Best Hit rate. (Win/Loss ratio)
Smallest number of losing trades.
Smallest number of consecutive losing trades.
Smallest number of trades.
Best average Win:Loss $ ratio
etc etc.


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