Optimization for Robust System Design

[Mike805]

Quote from bluedemon77:

Thanks, Mike. I haven't used CAR/MDD much, but I'll take a look at it. Because that's based on annualized returns, do you think that would give a reasonable evaluation for an intraday system? When you said you don't optimize for single systems, how do you set your parameters, or are you using some kind of adaptive model that adjusts on the fly?

Yeah, I think MDD should be the focus of any intraday system. That value translates to 1 unit of risk. How much are you getting for that 1 unit? How do you go forward for 1 unit risk in terms of $ account value and leverage. MDD should be directly proportional to intraday leverage.

Say over 10 years your average return is 20% and your max DD is 5%. That's a very good ratio IMO. Suppose you're returning 50% per year, but your DD is 50%. This is not a system I'd feel comfy about as it tells me that long term sustainability is suspect; e.g. suppose you see 2 50% DD's in a row.

Per anything adaptive; nothing complex really. I use the VIX as a guide to position sizing, but that's about it.