What does PF=1.075 tell us?

Quote from Retief:
This is based on actual trading or solely on your vast experience with back testing?
Probably the reason profit factor increases with bar size is because the size of profits and losses start to completely dwarf commissions and slippage with larger bars. At smaller bar sizes, commission and slippage has a much greater effect. This is also probably why the vast majority of day traders are losers - because they're dealing with bar sizes that are too small and have very small profit factors.
Just a theory.
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It's IMO a wrong theory :-)
Can you calculate the annual lower and upper bound expectancy of a stock
with a current price of $100 and with an annual historical volatility 0.35 ?
Ie. statistically worst and best expectancy after a year.
My calculations give Low=$70.47, High=$141.91
So, if you buy and hold for a year then be prepared to lose 29.53% !
Ie. you are risking 29.53% of your money.
Now do the same calc for smaller time frames...
Conclusion: the shorter the timeframe the less is the risk percent. Cf. the result I had posted previously (it has only -1.5% MDD risk for the whole year of giving back to the market from current account value...)
Compare this with the 29.53% above... :-)
High Freq Trading is the way to go as it limits the risk substantially.
Of course one must do it right... :-)
 
Quote from trd:

It's IMO a wrong theory :-)
Can you calculate the annual lower and upper bound expectancy of a stock
with a current price of $100 and with an annual historical volatility 0.35 ?
Ie. statistically worst and best expectancy after a year.
My calculations give Low=$70.47, High=$141.91
So, if you buy and hold for a year then be prepared to lose 29.53% !
Ie. you are risking 29.53% of your money.
Now do the same calc for smaller time frames...
Conclusion: the shorter the timeframe the less is the risk percent. Cf. the result I had posted previously (it has only -1.5% MDD risk for the whole year of giving back to the market from current account value...)
Compare this with the 29.53% above... :-)
High Freq Trading is the way to go as it limits the risk substantially.
Of course one must do it right... :-)
More...

Before you quit your day job and/or commit real money to a system with a profit factor of less than 1.1, you might want to test your theory for a month or two with a simulation account. Keep a journal here and show everyone that profit factor is almost worthless as a parameter for evaluating the profitability of a trading system. It should be interesting.
 
Quote from trd:

But it means for example GrossWin=$107,500 and GrossLoss=$100,000.
Ie. making $7,500 gain, that's a profit of 7.5%.
Why is making a profit of 7.5% bad?
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Some posts are painful to read...

slippage? commissions? trader error? risk? backtesting often means almost nothing? etc...

Profit Factor is one of the most important stats there is. Unlike some others, it is hard to manipulate when you have a large enough sample size.

1.075 says "sorry, try again..."
 
Quote from Retief:

show everyone that profit factor is almost worthless as a parameter for evaluating the profitability of a trading system.
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Why you think that PF is worthless ?




P.S. I have to agree with TZ that PF is very valuable
 
What if you have a PF of 1.1 but you are hitting 85 % of your trades? Is PF used alone worthless....but means a little more when used in conjunction with % profitability?
Where do you draw the line with PF vs profitability? Jim
 
I think the weakness of PF is that it does not include transaction costs.

You can have PF of 2 but due to A LOT of transactions > marginal profitable
 
Quote from jim c:

What if you have a PF of 1.1 but you are hitting 85 % of your trades? Is PF used alone worthless....but means a little more when used in conjunction with % profitability?
Where do you draw the line with PF vs profitability? Jim
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winning% does not mean anything. It is a stat that newbies cling to.

PF means how much $$$ did I win over how much $$$ did I lose? Most of what WP tells you, is contained in PF.

A knowledgeable trader will subtract ALL commissions and slippage from "wins" if doing any kind of backtest.

Further, they will also subtract something for lapses - occasional errors (long instead of short), forgetting to place a stop, overleveraged, IP connection went down, broker error, etc.

And further, since trading is abut Risk-Adjusted Reward, you should really deduct for Risk also. You can always blow out under certain situations.

You also need to adjust for the fact that few backtests carry forward in the same way. Few.

So 1.075 is basically breakeven to losing.

I would consider anything 1.4 and under as not profitable. And preference for at LEAST 1.7 or higher.
 
Quote from TraderZones:

winning% does not mean anything. It is a stat that newbies cling to.

PF means how much $$$ did I win over how much $$$ did I lose? Most of what WP tells you, is contained in PF.

A knowledgeable trader will subtract ALL commissions and slippage from "wins" if doing any kind of backtest.

Further, they will also subtract something for lapses - occasional errors (long instead of short), forgetting to place a stop, overleveraged, IP connection went down, broker error, etc.

And further, since trading is abut Risk-Adjusted Reward, you should really deduct for Risk also. You can always blow out under certain situations.

You also need to adjust for the fact that few backtests carry forward in the same way. Few.

So 1.075 is basically breakeven to losing.

I would consider anything 1.4 and under as not profitable. And preference for at LEAST 1.7 or higher.
More...
So a system that wins 85% of the time with a 1.1 PF is the same as a system with 1.1 pf and a 50% win %? I do not agree. Win % is NOT conatined in PF. It just isnt. If you win 1.00 for every 1.00 lose...and you win 85 % of the time....seems to me you would make money?
the question Im trying tp understand is...where do draw the line. Is it 65 % wins with a PF of 1.7 just as an example? Jim
 
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