• Advanced Options Location

The Advanced Options for Strategies, which include Forward-Walk Progressive Tuning, are located on the Strategy Information popup window (shown to the right) accessed by clicking the icon_info icon next to the Strategy’s name on the Strategies Management page. Click the Show Advanced Options button to expose them as shown in the expanded popup window below. To revert to using only the standard AlphaDroid options, click the Restore Standard Options button, and click Save.

• Forward-Walk Progressive Tuning (FWPT)

This is fundamentally the most important of the Advanced Options. Critics of backtesting are right when they level the charge that backtesting with hindsight may well tell you the best path to travel — after the path is known, but it might not have been able to find that path walking forward in time. The operative question is “did backtesting discover a reliable character, or did it discover a random lucky sequence of events?”

The gold-standard for backtesting performance of a predictive algorithm (for markets, environment, sports, etc) is the forward-walk progressive tuning methodology where a first set of data is used to tune the parameters of the algorithm for use in making decisions during a subsequent period of time, after which the parameters are re-tuned using the additional data from the prior period, and then used to make decisions during the next subsequent period of time. And so on. If performance is maintained, then tuning did discover a reliable character. To the degree performance declines, it is because the higher performance path is un-discoverable by the algorithm. The path may be undiscoverable because significant events are too unpredictable, or because the algorithm lacks sufficient sophistication to adapt.

Chart-2 is the same as Chart-1, but additionally has Forward-Walk Progressive Tuning (FWPT) enabled. You can see that the BornOn Date, as specified in the Advance Options screen above, is December 31st 2003. Starting on that date and extending to the end of the chart along the horizontal axis, there is a sequence of 18 yellow markers, each representing a date on which progressive tuning occurred. The progressive tuning interval is set for a minimum of 125 market days — just short of 6 months. The algorithm re-tunes itself only at the first available trade date after the 125 day interval so that no extra trades are induced by the process of retuning. Furthermore, if the Strategy is set for Trade Automatic, then re-tuning will respect any extended hold period that the currently owned fund may have and respectfully delay re-tuning until the next allowed trading date.