Trading system results overview

AskQuestions · Aug 17, 2006

Quote from inCom:

I found recovery factor to be a very useful figure besides Sharpe. It takes implicitly into account not only all the individual trades and their variability, but also the time sequence in which they occurred because max drawdown is considered in it. The same set of trades could have produced a very different equity curve if they had occurred in a different order.

If you look at an EQ curve with a very high RF you can see immediately that it's highly correlated to its linearity.

I found RF to be the best stand alone figure to express the quality of a curve. Alternatively, I look at avg % x trade, % winning trades and payoff ratio considered together. But I like RF best.

To the thread starter: I looked at the EQ curve you posted and it is too jagged to me, I personally wouldn't trade it. And the other system has too few trades, as it has already been said.

GS

appreciate your opinion.
thats an interesting point about RF.
what would you consider as an attractive RF value for your systems (please share with us if its daily/intraday stocks/futures etc)
thank you

timmyz · Aug 17, 2006

maybe the line of reasoning below will help set straight the PF bashers/sharpe praisers.

profit factor is flawed.
sharpe ratio is not flawed.
warren buffet's track record has a high profit factor.
warren buffet's track record has a terrible sharpe ratio.
therefore, warren buffet's strategy must be flawed.

lol!

Quote from Trader666:

You're kidding, right? If your understanding of something as simple as PF is so flawed, how can you ever hope to understand Sharpe? It is WELL KNOWN that Sharpe can mislead... even Sharpe himself said: "Sharpe ratios can give a false sense of precision and lead people to make predictions unwisely." So please do remain uninformed so I can take the other side of your trades. And keep me on iggy... at least until you get both of your neurons talking to each other.

inCom · Aug 17, 2006

Quote from AskQuestions:

appreciate your opinion.
thats an interesting point about RF.
what would you consider as an attractive RF value for your systems (please share with us if its daily/intraday stocks/futures etc)
thank you

I currently trade equities but that's actually not very important. RF is simply final net equity / max drawdown, both in $ or %. So you choose your time horizon and your max DD level, relative to what you have. Personally, I like to see RF above 10 as a bare minimum on at least 10 years of daily data. This implies a 10% max DD.

GS

man · Aug 17, 2006

Quote from timmyz:

maybe the line of reasoning below will help set straight the PF bashers/sharpe praisers.

profit factor is flawed.
sharpe ratio is not flawed.
warren buffet's track record has a high profit factor.
warren buffet's track record has a terrible sharpe ratio.
therefore, warren buffet's strategy must be flawed.

lol!

buffet has a modified sharpe of 1.54, with annual return of 22,43%. over thirty years with a multi-billion account you won't here too many comments by any pro that this is anywhere near to "terrible". one of the best, if not the best, quant shop out there, rentec, has a sharpe of 2.6 on their flagship medallion fund. very naive to think you match them when you are trading the same sharpe on a 50k account.

so, i am afraid, your post is as humorous as ungrounded.

other hint. if you had a backtest on intraday data like that:

1999 0.5%
2000 6.5%
2001 -6.2%
2002 10.0%
2003 21.0%
2004 10.5%
2005 6.4%

would you love to trade it?

these are the last seven years of berkshire hathaway. now, if you think that i think buffet doesn't do a great job, please return to the beginning of this post. after the third loop you are allowed to read on ...

timmyz · Aug 17, 2006

hey man cut your losses. the more you try to show how smart you are the more you show how dumb you are. cut you losses. you are obviously not a pro as you think/claim you are.
i can correct you on this post and on several of your previous posts, but by doing so i will only be doing one thing. i will teach you something. bye.

Quote from man:

buffet has a modified sharpe of 1.54, with annual return of 22,43%. over thirty years with a multi-billion account you won't here too many comments by any pro that this is anywhere near to "terrible". one of the best, if not the best, quant shop out there, rentec, has a sharpe of 2.6 on their flagship medallion fund. very naive to think you match them when you are trading the same sharpe on a 50k account.

so, i am afraid, your post is as humorous as ungrounded.

other hint. if you had a backtest on intraday data like that:

1999 0.5%
2000 6.5%
2001 -6.2%
2002 10.0%
2003 21.0%
2004 10.5%
2005 6.4%

would you love to trade it?

these are the last seven years of berkshire hathaway. now, if you think that i think buffet doesn't do a great job, please return to the beginning of this post. after the third loop you are allowed to read on ...

man · Aug 17, 2006

Quote from timmyz:

... how dumb you are ... obviously not a pro ...

which you prove by the fact that you could correct me on several occasions but you don't because you don't want to teach me something?

ya. very impressive line of argumentation. indeed.
how dumb am i, how smart are you. and how easily
you proved that.

taowave · Aug 17, 2006

Quote from GS19:

I agree with jstox, I have used Amibroker for four years and its better than anything else that I tried. Its a snap to write up a trading idea and test it out. Works great for autotrading at IB. And the price is low plus free data from IB.

Hi GS,

Do you really find AFL language a snap??
Do you have a programmng background?

I agree that its very easy to code up simpler backtests in Ami,but I personally found the looping code a bit daunting..

Any suggestions appreciated

traderdragon · Aug 17, 2006

It is better to keep your mouth shut and appear stupid than to open it and remove all doubt.
--Mark Twain

Quote from timmyz:

hey man cut your losses. the more you try to show how smart you are the more you show how dumb you are. cut you losses. you are obviously not a pro as you think/claim you are.
i can correct you on this post and on several of your previous posts, but by doing so i will only be doing one thing. i will teach you something. bye.

GS19 · Aug 17, 2006

Taowave
I know some programming but not a lot. I just learned AFL by looking at examples on Amibroker web site. I mainly like the versatility and speed of Amybroker so it was worth my while to study AFL, glad I spent the time to do so.

Trader666 · Aug 17, 2006

Quote from man:

i have the impression that with increased number of trades profit factor at least sometimes is diminishing while all other figures are great. i tested a smooth equity curve with a sharpe of 2, but a profit factor of merely 1.3. on the other hand i have a system with a profit factor of almost 3 with a sharpe of less than 1. if you look at the equity curves you quickly see that your visual impression is literally always in line with sharpe but really not always with PF.

This is exactly why people need to stay away from metrics they don't understand. The examples "man" has given are perfectly plausible and shouldn't surprise anyone. Unless, of course, they're under the mistaken impression that Sharpe and PF measure the same thing.

Profit factor is a very simple, "bottom line" metric that is calculated by: total wins/total losses. It (as a metric) is NOT "diminished" with an "increased number of trades" AT ALL and will only decrease with more trades if the system's profitability decreases with more trades. It doesn't take variability of returns into account... just the bottom line.

Sharpe is a measure of reward vs. variability and the denominator of the formula can penalize large gains as well as losses. So a profitable system with a month of exceptionally high performance would be penalized by Sharpe but still have a high PF, while another system steadily returning a tiny amount over the risk-free rate would have a high Sharpe but a low PF (and bottom line).