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how to measure the efficency of one indicator?
- Thread starter robinxing
- Start date
The lack of ways of measuring an indicator's efficiency is one of the leading defects of current software. About all the software allows you to do is build a system, and that's jumping way ahead of what you want to know about the indicator. There ARE ways to standardize the size of the moves "predicted" by the indicator. You could use Std Deviations or AvgRange. I have done it, and I did find the system I sought. But for starters, your best bet is to go thru miles of history and mark S or s (big success, little success) or F in a paper tally for each signal the indicator gave. This will tell you more than any math formula. I will save you some trouble and tell you that most published indicators are worth less than you paid for them. But reliable patterns DO exist.
Linda
Linda
Quote from robinxing:
how to measure it with statistical tools ?
any books talking about it ?
thank you
You need to put it in context, an indicator by itself means nothing. Work out how you are going to use it, that is put it in a system, and then backtest it. Sharpe, sorinto etc will give you a good understanding of whether you ideas are valid.
pneuma
spreadhseet a large sample of historical prices. Put in your indicator. If it outperforms, your averages/medians should tell you what you need to know.
Quote from MGJ:
I think it would be preferable to ask, How do I define the "efficiency" of one indicator?
Once you've defined "efficiency" in a quantitative way, measuring it is a small matter of programming and historical testing.
thank you MGJ
then how to test it with a quantitative way?