Diversify by parameters

...continued from yesterday...

Here’s a few more methods of diversifying that are not commonly known. You can read more about them in Richard Weissman’s book entitled Mechanical Trading Systems: Pairing Trader Psychology with Technical Analysis. Or you could just read the following.

If you have a math based trading system you might consider diversification in terms of different parameter settings. For example, let’s say you have a math based system that buys when the 10 period moving average crosses above the 20 period moving average. You notice through computer testing of your system that it works almost as well when you buy as the 6 period moving average crosses above the 12 period moving average. If you trade both versions of the system (10 crossing 20 as well as 6 crossing 12), you are diversifying in terms of parameter settings.

continued tomorrow ...

Copyright 2007 Raymond T. Lee. All rights reserved.
Leisurely e-Mini Futures Trading
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