EdgeWare FastBreak Pro Version 6.2 - Manual (Page 77)

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a temporary family file to use. This will create confusion if multiple executions are
trying to read and write to this family file.
Q) I created a new custom trading family but FastBreak does not show the family as
being available?
A) When you launch FastBreak, it copies the FastTrack families, fund names, and FNU
names into memory. You must shut down FastBreak Pro and re-launch it to make this
new data available.
Q) Sometimes I see the best out-of-sample (OS) performance in an earlier generation, but
it is deleted in later generations. What is going on?
A) FastBreak is trying to optimize results for the in-sample (IS) time period. We are
interested in systems that perform well over the IS and OS periods. Choosing a trading
system that performs well only during the OS time period is equally as bad as choosing a
system that does well only during the IS optimization period.
Q) How often should a system be re-optimized?
A) There are numerous theories about system “shelf life,” and we can only give general
guidelines. Often, the model will need to be re-optimized when there are major changes
in the trading family. For example, some mutual funds are no longer available or new
funds with good performance become available. The primary reason for re-optimization
is due to changes in market conditions. A rule of thumb from Pardo’s book is that a
system is valid for 1/8
th
to 1/4
th
of the optimization period. Therefore, if you use eight
years of price data for optimization, then the system would be traded for one to two
years. In general, we recommend re-optimization every year. Of course, if the trading
system starts to fail (under performance or an MDD that exceeds the historical value),
the system should be re-examined. Trading systems that are very over-optimized will
often fail very soon after development.
Q) When I put my out-of-sample (OS) test period prior to the in-sample (IS) period I get
an error during execution?
A) FastBreak Pro error checks the start date for the IS period to be certain you have
allowed enough data for ranking, stops etc.
It will automatically adjust the start if
required. However, it does not error check the start date for the OS start date (we had
assumed the vast majority of users will put the OS period after the IS period). You may
want to try a later start date for the OS period to avoid the error.
Q) I’m using NCalpha ranking, and the funds ranked highest have recently dropped more
in price than any other funds in my trading family. How can funds that have dropped so
much be ranked high?
A) Look at the formula for NCalpha in the Appendix. Funds that have dropped a lot
during a major market sell off can have a very high beta. The high beta combined with a
negative index gain over the ranking period can result in a positive alpha. For example,
a fund with a beta of 3, while the market index decreases by 15%, will have a positive
NCalpha if it looses less than 45%.