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Correlation cont'd. To come up with a single modified sharpe ratio what I've done is simply average all of the 12 period modified sharpe ratio's. In this way I've smoothed it and used most of the data so the results are more likely to represent what is going on. On this screen I've...

Correlation cont'd. In this example I've taken our 3 models and applied the modified sharpe ratio in column F. I believe the normal method of computing the modified sharpe ratio is to use 36 periods. In this example I've only chosen to use 12 periods. If I used 30+ periods of the 65 total I'd...

Correlation cont'd. Ok, so far most of this is probably old news to most of you. I needed to post it as background for those just getting started. The whole idea of combing models is to improve the consistency of the results. We've seen in a macro way how they can provide some benefit...

Correlation cont'd. Here's a screenshot of crude versus unleaded gas using 30 day average correlations between the two. Over the past 5 years the correlation was greater than 95% so you'd expect them to be highly correlated. This is what it looks like when they are.

One other thing about correlation I wanted to post was that even if we found a negative correlation, do a couple checks. If we had say -.4 between two models you might think you found a great negative method to complement your primary model. Another way I found to check it is to create a table...

I'll make this quick because it's way off the current topic. I have both Brainmaker Pro with the GTO component and Neuralworks Professional II/Plus. I no longer use neural networks for anything (replaced with something better). At the time I used Brainmaker for the GTO component to learn what...

All intraday breakout models based on different criteria. At this point I'm just posting the material as background info. If the methods are randomly correlated or non-correlated, sometimes the results will cancel each other out and sometimes they'll pile on with multiple orders going the...

When I'm around I trade against the models. I use them as competitors. I'm a competitive freak. If I know where the models want to buy or sell I watch the market and try to front run them and stomp on their results. When I'm not around someone enters the orders and trades them mechanically. I'm...

I didn't post starting capital because these aren't complete systems. They're just volatility adjusted so I can easily compare one year with another. Here's the annual summary for model2 so you can see that say 2003 was doing about as well as 2001. It's pretty obvious 2002 was way outside the...

No, they aren't curve fit. I've done some work on model 1 last year because it has an edge and I wanted to use that part of it for another model. The other two have been around for ages but I'm not doing anything with them because they have no edge. The results are based on 1 unit size (not 1...

Steve, the number of winners or losers in a row has no importance to me as long as the trades are independent. If I see numbers outside of normal bounds then I search for dependency (loss begets loss, etc.). To know if the number of wins or losses is outside of the normal bounds I created a...

The first of the important concepts is to avoid trading correlated methods. You've probably read in some system development books that you should use negatively correlated methods. That's nice to hear but how do you achieve it? In most cases you don't, however you can achieve non-correlation by...

The 3 models all trade the same market (SP). I don't want to share the exact details so I'll post some of the overview on each. The file contains the monthly numbers for each model from 1/1999 - 5/2004. I chose the 3 models because they give a wide spread of numbers like you might find in...

The next series of posts will be about some of the methods I use to make sure I achieve my goal of consistency. In my case the goal is 99% chance of profitability per-month. If your goal is daily, weekly, or yearly profitability then just think "daily or yearly" for everything I say about the...

Yes, you're right. On the post with the daytrade4.txt the Epf should be: Epf = (PW * AW)/(PL * AL) Epf = (.8 * 600)/(.2 * 400) Epf = (480)/(80) Epf = 6 or the 50% level described in the test Maybe Magna will be nice enough to edit that post so that it won't confuse others.

From the test you can see it should win 70-80% of the time each month, have a monthly max drawdown of about 16k and a max profit of about 33k. Here's the graph of the monthly results for the past 5 years. The red indicates losing months and the green are winning months. As you can see there were...

It's called a Monte Carlo Var Analysis. If you do search on Google you should find lots of info. For these tests I used a normal distribution curve for the results. I have another version that I use to simulate fat tails (which is slightly more representative of actual trading). For the big...

The main idea of this first series of posts was to show what is important in moving toward becoming a consistent winning trader. By choosing a timeframe and then working on both the profit factor and number of trades you can move toward the goal of consistent profitability. Here's some rough...

As you can see from this last test by increasing the number of trades from 10 to 20 and keeping the profit factor, win %, and expectancy the same we've improved the confidence level to above 95%. So if our daytrader wanted to be 95% confident that he'd make money every day he could have also...

From this past test we can see that if we kept the profit factor the same but changed the win % and expectancy, we'd have the same confidence level as we started with 80%. From this we can tell the win % and expectancy are not critical to consistency. One of the keys that is important is the...