When I was in college, I was an obnoxious smartass. Like every ambitious, testosterone-driven Singaporean male, I believed I could trade my way towards becoming a millionaire.
So I bought some trading software, some market data, several hundred dollars worth of trading books, and begin to craft my own strategy. Back then, “rules-based” technical trading was all the rage. I coded these rules into my software, making my trading model complex, layered, and sophisticated.
In my backtest results, the model performed wonderfully. It was projecting a 5% returns per month, which would make me a millionaire in less than a decade. Armed with statistically-significant data, I started trading with “seed funding” from my parents…
… And it was a total disaster. I lost over $10,000 in a few months – an exorbitant amount of money for a poor college kid.
What went wrong?
I Committed The Overfitting Fallacy