Avoiding Premature Optimisation

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In this article, I will illustrate the process followed to implement a trading system while avoiding the compulsive search for patterns in historical data, one of the main sources of overfitting and distortion in the development phases.

In particular, I will test the use of an extremely simple model as a diagnostic tool: not designed to directly generate performance, but to formalise a minimal set of conditions which, when the market reactivates them, can signal the presence of a potential advantage to be explored further. Its function is therefore not to produce definitive operational signals, but to trigger human intervention when concentrations of performance emerge that warrant further investigation. In other words, the model acts as a preliminary filter, signalling where a latent advantage may exist, but does not exploit it directly.

The objective is to verify whether this approach can provide operational guidance on where to focus research and development efforts, identifying areas where there is a statistically defensible and potentially extractable advantage.

The approach will therefore be methodological and structured in four phases:

• definition of the basic model: a minimal configuration with very limited degrees of freedom, not intended to generate direct trading signals but to test structural compatibility with the market;
• compatibility and asymmetry checks: monitoring the fairness of the unoptimised structure, verifying that the hypothesis is not interchangeable, and assessing directional consistency;
• targeted optimisation: introducing a level of money management without changing the logical structure or engaging in extensive parameter exploration;
• system implementation: execution of the system in a new environment and verification of its behavioural consistency.

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• Number: 19022026

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