Glossary › overfitting

Trading glossary · advanced

overfitting

Tuning your trading rules so closely to old charts that they only fit the past and fail on new charts.

The fuller meaning

Tuning a strategy so closely to past data that it fits random noise instead of a real pattern. The in-sample equity curve looks perfect and collapses on new data; warning signs are many parameters, many tweaks and smooth results. Out-of-sample and walk-forward testing guard against it.

overfitting, also called curve fitting.

Related words

at the money · backtest · backwardation · basis · call option · contango · data snooping · delta · edge · entry trigger