What is Curve Fitting?
Curve Fitting
Forex Trading Glossary
Quick Answer: Curve fitting is over-optimizing a trading strategy to fit historical data, often producing poor real-world performance.
What is Curve Fitting?
Curve fitting is the practice of over-optimizing a strategy to perform well on historical data at the expense of future robustness. It is a common pitfall in algorithmic and discretionary trading.
Warning Signs
- Too many parameters: Strategy relies on numerous optimized inputs.
- Poor out-of-sample results: Performance collapses on unseen data.
- Overreaction to noise: Strategy incorporates random quirks in historical prices.
- Lack of rationale: No logical explanation for parameter choices.
Stay Objective
Split data into in-sample, out-of-sample, and live-forward tests. Reject systems that fail robustness checks.
Preventing Curve Fitting
- Simplify rules: Use fewer parameters with clear logic.
- Walk-forward testing: Recalibrate periodically on rolling windows.
- Monte Carlo analysis: Stress-test results with random permutations.
- Keep performance realistic: Avoid strategies that promise perfect equity curves.
Related Terms
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