Understanding Curve Fitting and Overfitting

Curve fitting, also known as overfitting, involves manipulating data to create an appearance of success that may not be truly representative of a system or strategy's performance. This can occur either intentionally, such as when sellers of trading strategies present only their best results, or unintentionally, as traders might emphasize successful data while neglecting less favorable results. For instance, a trader might highlight a recent winning streak while ignoring a full year's performance that could show inconsistencies. The danger lies in forming unrealistic expectations based on selective data, which can misguide traders who wish to adopt these strategies.