Way of the turtle

Representative Samples
Two major factors determine how likely our sample trades and test
results are to be representative of what the future may bring:
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Way of the Turtle

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• Number of markets: Tests run with more markets are more
likely to include markets in various states of volatility and
trendiness.
• Duration of test: Tests run over longer periods will cover
more market states and be more likely to contain sections of
the past that are representative of the future.
I recommend testing all the data to which you have access. It is
much cheaper to buy data than it is to pay for the losses associated
with using a system that you thought worked only because you had
not tested it over a sufficient number of markets or a sufficient num-
ber of years. Won’t you feel inept when your system stops working
the first time you encounter a market condition that has existed
three or four times in the last 20 years but was not part of your test?
Young traders are particularly susceptible to this sort of mistake.
They think that the conditions they have seen are representative of
those markets in general. They often do not realize how markets
go through phases and change over time, often returning to con-
ditions that previously existed. In trading as in life, the young often
fail to see the value in studying the history that occurred before they
existed. Be young, but don’t be foolish: Study history.
Remember how everyone was a day trader and a genius during
the Internet boom? How many geniuses survived the collapse when
their previously successful methods stopped working? If they had
done some testing, they would have realized that their methods
were dependent on the particular market conditions of that boom,
and so they would have stopped using them when those conditions
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were no longer present. Or perhaps they would have employed
robust methods that work well in all conditions.