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B:
Please share your workaround and other thoughts and ideas you have about
how to evaluate multiple simultaneous positions.
A system that has good profit but large dds on individual stocks will
likely have good profits and much reduced dds on the composite or
portfolio, esp if the stocks are not all totally correlated to a single
index.
Code that is rejected on the basis of a poor Equity/dd ratio on single
issues might be very good code when its composite across the right mix
of stocks is evaluated.
Please share anything and everything you know and use related to this
topic; I believe it is one of the most important topics in finding and
trading a "successful system".
Thanks,
Ken
-----Original Message-----
From: b519b [mailto:b519b@xxxxxxxxx]
Sent: Thursday, March 13, 2003 9:31 AM
To: amibroker@xxxxxxxxxxxxxxx
Subject: [amibroker] Re: Optimization - "Issues" testing portfolios with
AB.
Chuck,
At present, using AB to simulate trading a portfolio raises a number
of "issues". When Tomasz adds portfolio level testing to AB
(hopefully soon), all of these issues will be history. Until then,
users need to be very careful when using AB to test such systems.
As I said there are several issues, but this post will focus on the
one that is most likely causing your strange results.
> I am building the composite equity by saying:
> AddToComposite(Equity()/1000, "~Composite", "X");
Dividing by 1000 is not a problem and it has the advantage you
state.
But your composite does not take into account how many stocks have
contributed to the equity curve on a given bar. As it stands, the
composite justs sums the equity curves of all the stocks tested.
Since the number of stocks in existance (even when including
inactives) has increased over time, the composite is NOT measuring
return, but total capital invested (plus or minus profit). Until AB
adds portfolio level testing, there is no way to tell AB to limit
the total capital invested in any given year. So if 100 stocks met
the criteria in year 1, the equity curve of the 100 stocks gets
added to the composite. If in year 2, 50 stocks met the criteria to
trade, then the composite will have the original 100 plus 50, and so
on.
Here is another way to look at the same issue. When AB looks at the
first stock (it tests each independently), adds that stock's equity
curve to the Composite. Lets assume stock 1 started trading in 1991.
If the system looses money, the amount getting added to the
composite will decrease over time.
AB then looks at the 2nd stock and it also looses money. However,
stock 2 has only been around since 1992 and so its equity curve gets
added to your composite beginning in 1992. So even if both stocks 1
and 2 lost money, the composite equity curve would show a jump up in
1992. Let's say stock 3 starts trading in 1993 and it also looses
money, but the composite will show another increase. Repeating this
for the 7,500 stocks you tested could make a loosing system
show "beautiful" equity.
If this explaination is correct, it suggests that you have yet to
get that profitable MetaStock code into its Amibroker equivalent.
If any are interested I can share how I try to "work around" this
issue.
b
--- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
<chuck_rademacher@x> wrote:
> I would appreciate it if someone could help me to understand what
I'm seeing
> in an optimization run.
>
> I am running about 1000 combinations of parameters over 7,500
stocks over 15
> years of daily data. Fortunately, my PC has plenty of grunt and
the run
> actually finishes.
>
> Most columns in the results grid show negative results. Net
profit, RAR,
> Average Trade, etc. are all negative and the profit factor is less
than one.
>
> You might be tempted to say "try another system".
>
> BUT... the composite equity curve is showing a very positive and
consistent
> profit. Since this system was converted from a profitable
MetaStock
> system, I expected to see a profitable equity curve. I sorted
the results
> by "Average Trade" and then did a backtest on the highest ranked
set of
> parameters, even though the average trade was showing as a
negative value.
>
> I am building the composite equity by saying:
>
> AddToComposite(Equity()/1000, "~Composite", "X");
>
> The reason I divide by 1,000 is so that the profit values are
shown in an
> acceptable format without overflowing into scientific notation.
The equity
> curve is a very attractive 40% angle, gradually going from zero to
$30
> million.
>
> Since the equity curve looks like what I expect, why don't I see
positve
> values for the important metrics like RAR, Average Trade, etc.?
>
> I want to believe the equity curve, of course. But I'm
uncomfortable
> seeing all the negative metrics.
>
> I'm also uncomfortable simply selecting the highest ranked set of
parameters
> when the best value is negative.
>
> Any assistance or comments would be appreciated.
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