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Thank you sincerely for going to so much trouble
Maybe I wont give up the day job just yet!
--- In amibroker@xxxx, traders10@xxxx wrote:
> --- In amibroker@xxxx, farriners@xxxx wrote:
> > Hi,
> > As a newcomer just getting into optimizing, it would be really
> > helpful to have a rough idea what more experienced guys expect
from
> a
> > reasonable system. I am not asking for trading secrets/formulas,
> just
> > an idea on returns to aim for to help me and other newbies.
> > info' such as:
> >
> > period covered
> > % return
> > number wins/losses
> >
> > (also if possible $invested per trade, broker fees)
> >
> > ie if I am getting 15% on 30% wins/losses is this above average,
> > average or "dont give up the day job"
>
> Ill tackle a few of these questions. First there is no right or
> wrong...just what you as an individual feel comfortable with...
>
> Period: does not need to be very long if a variety of market
> conditions are included. Right now it is easy, look at AMAT for
> three years. There was a moderate upslope in the beginning, the
wild
> bubble in late '99 early '00, the selloff in late '00 early '01,
and
> the choppy sideways action in mid '01. That is a good sampling of
> different market conditions. You don't need to go back many years.
>
> % return will be all over the map depending on the security,
period,
> and the amount of over optimization (curve fitting) you used. Look
> at a couple of major market indexes. Can you beat them in sideways
> and down markets? Is your return higher and your drawdowns lower?
>
> Remember that it is very difficult to beat buy and hold durning an
> extended bull run like late '99.
>
> The number of wins and losses, or hit rate, if you will, is very
> subjective. Almost any trading idea will be right about one third
of
> the time, no matter how poorly it is constructed. Put another way,
> throwing darts at the financial page will give you about 35%
winners.
>
> Some people, and many beginners, want to see very high hit rates on
> the order of 70-85%. Most systems with very high hit rates like
that
> have a very small return per trade and small returns overall. Some
> of the very best systems have low hit rates in the 30-40% range but
> catch the occasional huge winner for overall good profitability.
>
> I prefer hit rates rates above 50% if possible. I can't stand a
long
> string of losses with no winners. Some people can. You need to
> figure out your own comfort level in this area.
>
> Some other things to look at are:
>
> Average winning trade, this should be a couple hundred dollars or
> more, to cover commissions, slippage, inability to get the trade
> executed promptly, inopportune phone calls, etc. Also recognise in
> real trading you will probably only make half the profit that the
> optimizer made.
>
> $ Win/loss ratio: This will be low to less than 1 for high hit
rate
> systems, and must be 3 or much better for low hit rate systems. If
> you are going to lose money on two out of three trades they better
be
> small losses compared to the wins.
>
> Maximum drawdowns should be better than the drawdowns from buy and
> hold, otherwise your system is rather ineffective. My philosophy
> is, we trade to reduce losses, the winners will take care of them
> selves. If your losses are no better than buy and hold dips, why
> bother trading.
>
> When you get serious about a trading system, examine the trade by
> trade display on the chart. Is the system buying and selling at
> reasonable places. Did it totally blow it somewhere and be on the
> wrong side of your desired position for a period of time. Those
kind
> of trading errors need to be fixed by modifying the system to avoid
> or minimize the problem areas.
>
> Many times the most profitable optimization is not the preferred
> one. The optimizer will "get lucky" and catch some big move and
> screw up the rest of the trades. This is why you need to examine
the
> other statistics and the actual trades on the chart. Look at the
top
> 15-20 results and see how the other factors vary. Plot several of
> the results on the chart. I find that that if I get the same
> parameters for best profit factor and best ROA as for max profit
> then I may have a reasonable optimization run.
>
> Well, by now you should be in data overload, so I will end it
here.
> Needless to say there is a lot more to optimizing backtests than
just
> doing a couple of quick runs.
>
> Cheers
> Trader
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