Effeciency of an Auto Strategy

[mlipsky]

efficient frontier is the application of leverage and leverage would not effect win %, it would only effect % earned on his capital.

your friend was right.

 

[syswizard]

55% win rate with 1000 trades means 45% losers (@ $1 each)

chance of a 5$ drawdown (by 5 consecutive losing trades) :-

( 0.45 ^ 5 ) x (1000-5) = 18.36 times per 1000 trades.


85% win rate with 100 trades means 15% losers (@ $1 each)

chance of a 5$ drawdown (by 5 consecutive losing trades) :-

( 0.15 ^ 5 ) x (100-5) = 0.0072 times per 100 trades.

Give me the second example with 10x leverage any day.

The assumptions here are out-of-whack.....as a high percentage winning system almost always has a larger Average Losing Trade compared to the Average Winning Trade...sometimes as high as 5:1.
Recompute please.

 

[toe]

syswizard I should have explained that the calculation was in response to Serge Pustelnik's calcultations. Serge's conclussion was :-

"Conclusion:

The high winning percentage is usually an indicator that the system has extra constriants placed that produces too many false negatives. The goal is not to reduce the actual winning percentage by to reduce the false positives to a point where it still makes sense. "

I thought he was missing one aspect and I believe nitro thought the same. I dont dissagree that often increasing win% can reduce WinSize/LossSize, but it was not part of Serge's arguement at the time.

If you want to recalculate you need to make assumptions about the degradation of WinSize/LossSize, it better if you have actual figures to work with.