026: Systematic trader Robert Carver discusses trading rules, what makes a good trading rule and the advantages of using continuous rather than binary rules. He also shares insights into over-fitting and the challenges of walk-forward testing that can mak
Better System Trader
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How Do You Calculate the Average Absolute Value of Your Forecast?
A forecast is essentially a kind of output from your trading rule that's in a standard scale. In my book, I use a scale calibrate so that the average absolute value of forecast is 10. So what does that mean in practice? It means you set up your trading rules in such a way that obviously zero means no position. You don't know what's going to happen. Plus 10 would be a kind of a buy. You'd want to have a reasonable average size long position on. Plus 20 means that you're really confident this thing's going to go to the moon. It's a really strong buy. And similarly, minus 20 means thatyou think this is an absolute dog
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