Here’s a great quote, from a legendary trader with 30+ years experience…
It’s a great reminder that when it comes to trading, less can often be more…
“I get real, real concerned when I see trading strategies with too many rules (you should too)” – Larry Connors.
But the question remains: What’s an acceptable number of rules?
We investigated this theory at our hedge fund and discovered that, surprisingly, strategies were perfectly fine up until 5 optimization inputs.
I understand that deciding how many rules and optimization inputs to utilize in a strategy might be daunting, but the goal is to strike a balance.
Too few inputs may not create enough of an effective adaptation to ever-changing market conditions.
On the other hand, too many inputs can create complexity and hinder the strategy’s performance.
Based on my research, the sweet spot is 3-5 optimization inputs, which allows for proper response to market conditions… especially when you’ve done a reoptimization.
Stick to this rule of rules and you’ll be as happy as Larry. :-)
Watch this video to learn more: