Curve Fitting

Curve Fitting - A form of overfitting specific to trading strategies. It refers to adjusting a strategy so closely to historical price fluctuations (noise) that the model captures random patterns rather than true market behavior. A curve-fitted system performs very well on in-sample data but usually fails on new data. Avoiding curve fitting involves simplifying the strategy, limiting parameters, and validating with walk-forward or out-of-sample tests.