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Hello,
Here is an example on how I select a ticker to be included in a system
portfolio (a sure form of curve fitting, but...) I also touch upon how
I analyze the system base on one selected ticker trying to fine tune
this system. I hope to invite some discussions and debates, critics
and comments.
1) trade range: 1/1/99 - today
The range is selected to cover the big runup and big crash, hoping
to detect the system as well as target's response to the big swings.
2) A short term EOD system is used.
3) After optimize the system to death (another curve fitting), I
selected some parameters that look stable. (Thanks to Herman's
3DCharts, I used it every time I do the optimization)
4) I started to run the system on a bunch of tickers, say N100.
5) I then select only those with, say > 20% RAR over the test period,
(I would like to use MAR, but so far it is very difficult so I choose
RAR) I put those selected into a watchlist.
6) I then run tests on the watchlist.
a) I move the test range from 1999 - 2003 --> 2000 -> 2003, again I
chop off those not meeting a certain RAR, then 2001 -> 2003, then 2002
-> 2003. I only want those that are profitable on every test and they
have to show to generate a certain RAR.
b) There will be only less than a handful candidates now.
7) I will then start to run the optimization again on the selected
candidates, just want to make sure the original optimized parameters
are still a good choice. If yes, good, a new portfolio is created, if
NOT, well, all bets are off, I might start again on the newly found
optimized parameters on the whole N100 again and start the whole
process to see if the new parameters are stable on SOME other tickers.
8) You might want to start testing the watchlist on any UN-tested data
range now. I did not.
8) It is a tedious process but interesting journey.
OK, let us say I have the portfolio selected and system chosen. I will
go into each ticker selected to do some more analysis.
As an example, I offer one below.
Again, it is a short term EOD system, as you can see below.
a) There are 240 trades from 1/1/1999 - 2/14/2003
- a RAR% > 260% system
- a MaxDD% > -86% system when position sizing = 100%
- I am eagerly waiting for the portfolio level position
sizing feature to arrive.
b) When the profit% per trade was analyzed
- max. loss = -20.1%
- max. gain = +84%
- average = 3.14% (all entries in the profit% per trade
column are averaged)
- standard deviation (SIGMA) = 14.76%
- average - 2 * sigma = -26.37%
- this is larger than the max. loss, a good sign.
- average + 2 * sigma = +32.66%
- max. gain is much larger than this, also a good sign
- FAT tail effect
- It was found that if I align trades from max. loss to max
gain sequentially it takes the first 223 entries to get the gains to
offset the losses, it pretty much leaves only 18 profit trades to make
the extra profits taken home
- 18 / 240 < 8% of the trades makes the day.
- It also hints loudly that I have to take every trade,
because it is extremely difficult to be selective in choosing trades
and hit on those 8% big winning trades, they are so few and far in
between that I can not afford to miss any.
- The FAT tail is very important, it means the losses have
been kept in check and profits have been left to run.
d) Further analysis on the biggest losses
- most of the biggest losses are the results of the GAPs, I do
not see any way to prevent these trades, I guess I have to live with
them.
- Further check might be focused on the MAE (Maximum Adverse
excursion) on profit trades to see if there is any chance to use the
collected statistic to create a hard stop to further minimize the
losses.
NOTE: this system has a very low profit factor of 1.34, but thanks to
Fred, it has also the following statistics on the last day of range
CAGR% = 267.13
MDD% = -68.89
MAR = 3.88
UPI = 56.35
KRatio = 3.30
MFlat = 267
Some more statistics on the analysis of profit % per trade:
average sigma avg - 2 sigma avg + 2 sigma
For ALL trades: 3.14% 14.76 -26.73 +32.66
Losing trades 6.14% 4.31 -14.77 +2.49
only
Winning trades 14.06% 15.33 -16.60 +44.73
only
I can not offer any useful analysis on these statistics but I do hope
TJ can offer All trades, losing trades, winning trades report.
As you can see it is a very difficult system to trade. It is only an
example to illustrate the process.
Hope you find these info interesting and tickle you brain.
Thomas
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