Bias-Free Backtesting: The Big Saturday Interview with Trader Ernest Chan

Editor’s Note: In 2009, David Penn sat down with trader Dr. Ernest Chan. Here’s a look back at their conversation.

Click here to access this week’s Big Saturday Interview with trader Ernest Chan.

In the first half of our conversation with trader Dr. Ernest Chan, we discuss the role and importance of backtesting trading systems and strategies. Dr. Chan shares with us is own insights into what should – and should not – be a part of a successful and profitable trading strategy and how he discovered that when it comes to winning trading systems – bigger and more complex is not necessarily better. Says Dr. Chan: “You cannot have too sophisticated a model that is applied to finance or you will end up over-fitting past patterns. This was a real surprise for me. I thought that, with our sophisticated statistical research knowledge, it would be a breeze to discover patterns in finance and the markets and profit from them. But actually, it’s the opposite.”

Dr. Ernest Chan specializes in the research and development of statistical models and software for stock and futures trading. Through his firm, E.P. Chan & Associates, Dr. Chan works with professional and institutional traders and investors to test investment and trading strategies, design and deploy automated trading programs, as well as training clients to be able to create and develop their own back testing and systematic trading. He has worked with investment banks from Morgan Stanley to Credit Suisse and hedge funds such as Millennium Partners.

A Ph.D graduate of Cornell University, Dr. Chan also co-manages the EXP Quantitative Fund, L.P. He is the author of Quantitative Trading: How to Build Your Own Algorithmic Trading Business. Read his blog at

To access our Big Saturday Interview with trader Ernest Chan, click here.

Click here to read the second half of our of our interview.

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