EdgeWare FastBreak Pro Version 6.5 - Manual (Page 72)

72
Trading International Funds
We built a family of 34 international funds that can be traded with either no, or low
transaction fees. We examined the impact of restricting the number of switches per year
on trading performance.
An investor may want to constrain trading because the
brokerage company may have a limitation on trades allowed per year. The strategies were
optimized with an IS period of 1/4/1993 to 12/31/1997, OS period of 1/2/1998 to
9/19/1999. Strategies holding either one or two funds were optimized for 5, 7, 9 switches
allowed per year (if one fund is held), 9, 12, 15 switches allowed per year (if two funds
were held).
A judgment was made for selecting the “best” generation from 15 total
generations. In general, the generation with the best OS average was chosen. Here are
the annual performance results for both IS and OS:
In all cases we get outstanding OS performance, and we see a general trend of IS
performance increasing as more trades are allowed. This is not surprising, since allowing
more trades gives the GA more latitude in parameter selection.
What is somewhat
surprising is that the best OS performance results are from the more restrictive switches
per year cases.
This would indicate that although there may be a penalty with IS
performance when restricting switches, the strategies may not be hurt in their predictive
capability and may actually be improved. This is a small sample of test cases and your
results may vary. You should be aware of these types of trends when restricting switches
per year.
Double Period Out-of-Sample Testing (Select Funds)
The major assumption for system development using FastBreak Pro is that systems that
perform well on historical data will perform well on future data. This assumption is
proven to a large extent by the fact that the Out-of-Sample results have good returns and
these results improve, on average, as the In-Sample results improve from generation to
generation. You may want to repeat the test that follows for a couple of reasons. First, it
will help you feel comfortable with the systems developed, and second, it may help you
20
30
40
50
60
5 7 9 11 13 15
Switches/Year
IS
R
e
tu
rn
,
%
/y
e
a
r
1 Fund IS 2 Fund IS
1 Fund OS 2 Fund OS