First of all, a warm Thank You for the comments and e-mails and coding posts that followed Occam's Razor and the 3 Finger Lead. It's nice to know that other traders are thinking about these ideas and devising tactics to incorporate them into their trading.
George made a comment about curve fitting that I think is particularly apt. Anybody that's attempted to develop code runs up against this sooner or later and it basically has to do with creating a false probability scenario based on over-optimizing the system variables in order to maximize performance (ROI). The more variables, the greater the possibility that curve fitting will occur.
There are a number of data testing models (and software programs) that can help reduce curve fitting errors. A common method, the walk forward, divides the symbol database into segments that are tested incrementally, usually from latest to most current. Depending on the size of the database (# of bars), I typically divide the database in half, run an optimization test on each half and then set the variables to an average value. I've also got an adaptive algorithm for most oscillators that I can insert in the code to smooth things out as time moves forward. Although 3 Fingers took me about 45 minutes to post, it took over 20 hours of my time to develop, refine, test, refine, retest, refine, retest, etc..... Hey! . . . I'm old, things take a little longer.
Keep in mind that, as a daytrader, I use these system to build a consensus of momentum and to gauge probability of the daily cycle. Studies like Expiration, Cheaphooker and Monthly End Tickler are date based systems and I may take multi-day positions on these, if all the signals align.
I tend to think of these systems not with the danger of curve fitting, but with the advantage of reverse engineering. At the same time I'm always mindful of the markets' tendency to mean reversion (per my 3 Linear Regression studies) and although the markets may make significant trend moves, there will always be some retracements back to the mean (or below) along the way.
I posted 3 Finger Lead as a jumping off point for further trend following studies and will make an effort to identify possible curve fitting dangers in the system logic for future permutations. This blog is a work in progress, and those who have followed my twisted path over the past year have seen the theme and focus of the posts change considerably. I hope to get in a few more burps before I'm done.
Anyone wanting to pursue system trading ideas further can check out www.futurestruth.com, a site I have mentioned several times before and for which I have the highest respect, but no connection. A lot of free stuff here, although for committed systems traders, and would-be auto traders, the magazine is the value of the century. Check out the top 10 systems. . . some of these have been making consistent money for years, suggesting that curve fitting is probably not one of their characteristics.