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I can
understand and appreciate why you use fixed trade sizes in order to get the best
parameters. But how do you get a reasonable measure of drawdowns that way?
Do you use some other technique to evaluate drawdowns?
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size=2>
Re
your param selection method: Do I understand the steps
correctly:
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size=2>
1. You
optimize for the best params
<FONT face=Arial color=#0000ff
size=2> a. Based on what column or
calculation?
<FONT face=Arial color=#0000ff
size=2> b. What date ranges would you
be using currently?
<FONT face=Arial color=#0000ff
size=2> c. What subset of stocks would
you be optmizing on?
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2. You
set aside the the top 100.
<FONT face=Arial color=#0000ff
size=2> a. Do you set aside any at the
bottom?
<FONT face=Arial color=#0000ff
size=2> b. How did you determine
that the first set of params would be at the edge of the parameter space?
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face=Arial color=#0000ff size=2>
3. You
reoptimize the resultant set from step 2 and those are the ones you
use.
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Given
the size of your trading capital how do you decide what stocks to trade on a
particular day?
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I'm
not trying to pick a fight here I'm intensely curious as I've been struggling
with these questions for quite some time now.
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size=2>
Thanks
for any comments you choose to make.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>d
<FONT
face=Tahoma size=2>-----Original Message-----From: Chuck Rademacher
[mailto:chuck_rademacher@xxxxxxxxxx] Sent: Thursday, April 17, 2003
6:58 AMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker]
To compound or not to compound... that is the question
Reply
to Fred:
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Yes... and no.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Absolutely, in real time trading I am compounding.
<FONT face=Arial color=#0000ff
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To
determine parameters via optimization.... not if my life depended on
it! And, I guess my life does depend on it, as I make my living
managing funds for others.
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size=2>
I
mentioned one trade (AOL) where my system made $1.5 million on a $10,000
investment. That's not bragging... I'm sure you could come up with
a system that could achieve similar performance. Since the average
trade generated a profit of $2,700 for every $10,000 invested, the AOL trade
could cover up lots of bad trades made using one parameter set.
Compounding that trade would exacerbate the problem. A minor tweak
to the parameters could cut out the AOL trade, yet that very tweak could
improve performance going forward.
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size=2>
When
choosing parameters, I want plain vanilla trades, each standing on their own
merit, with no compounding.
<FONT face=Arial color=#0000ff
size=2>
We
may have to agree to disagree. It's like absolute gospel to me and
I cannot see clear to do it any other way.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: Fred
[mailto:fctonetti@xxxxxxxxx]Sent: Thursday, April 17, 2003 3:16
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker]
FW: [aaft_ta] Re: TradingRecipesChuck,I'm
sure you'd agree, wouldn't you ?, that one way or another you
compound. If you are not compounding by increasing bet size then
you are compounding by increasing the number of stocks you'll
potentially take simultaneous positions in as equity grows, right
? --- In amibroker@xxxxxxxxxxxxxxx, "Chuck Rademacher"
<chuck_rademacher@x> wrote:> For what it is worth, I use
fixed bet size for all backtesting purposes. I>
coudn't imagine backtesting/optimizing using any other approach. I
even go> a step further if I'm doing any optimizing.
I recently posted an equity> curve showing something like $80
million in profit. Within that $80> million, the top
100 stocks (out of 13,500) generated $20 million in> profits.
AOL, by itself, generated $1.5 million in profits. In each
case,> the original trade was only $10,000.> > As I
said, I go a step further than just using a fixed bet size. After
my> first pass at optimizing, I remove the top performing 100
stocks. I then> re-optimize without those stocks.
Granted, I could end up with some new> "top" stocks.
However, my objective is to remove the extremely large> winners
so that the profits from those stocks don't cause me to select>
parameters on the edge of the parameter space.> > I don't
bother removing the worst performers as the largest loss might
be> something like $16,000 (even though the original trade was only
$10,000).> This can happen if a short trade goes against
you.> > As I said... for what it's
worth...> -----Original Message----->
From: Bob Jagow [mailto:bjagow@xxxx]> Sent: Thursday,
April 17, 2003 2:21 AM> To: Amibroker>
Subject: [amibroker] FW: [aaft_ta] Re: TradingRecipes> >
> Re the "portfolio level testing" magic bullet.>
> Bob> -----Original
Message-----> From: Palmer Wright
[mailto:palmerw@xxxx]> Sent: Wednesday, April 16, 2003
8:27 PM> To: aaft_ta@xxxxxxxxxxxxxxx>
Subject: Re: [aaft_ta] Fwd: Re: Available Portfolio testing programs
for> TS2000i> > > Since Michael
forwarded the two messages (see below), he added four> additional
ones. The issue about whether a "basket system" like Aberration>
is worth trading I will not discuss here (I still trade it). The other
main> issue is about the effect of compounding when testing with TR
(Trading> Recipes), and I comment here on that.>
> Traders buy TR because it can test portfolios of
systems and markets using> position sizing. A position-sizing
strategy such as fixed-fractional money> management brings two
advantages: it normalizes markets (eg., calculating> many
contracts for corn, but few for natural gas), and limits entry risk
for> each position to a fixed- fraction of current equity--thus
preventing> overtrading. If you do not use TR, I do not know how
you can get the large> returns that compounding multiple markets
can bring.> > Leslie Walko points to the potential
danger of curve fitting caused by> compounding. I agree, and have
been concerned for years about how one market> in a portfolio
(commodity X) by being dramatically profitable in a single> year
can misleadingly bias the results of the whole portfolio.>
> During a multi-year test in TR, starting equity is low,
perhaps $100,000,> but compounding raises equity to many million
in later years. The one-year> outperformance of commodity X cand
produce two kinds of curve-fitting bias:> early-years bias and
end-years bias. Mark Johnson's message describes the> first,
where X gives "a big turbocharged boost" to the portfolio's
equity,> which then gives a head-start boost to the number of
trades in all the> commodities traded. The second occurs when X's
monster trades occur in the> final years of the simulated time
period when the large number of contracts> makes X's profit far
larger than if its big year came early. Here the> profits
contributed by X dwarf what they were in the first case.>
> As the message from M points out, we can avoid such
biases by normalizing> with a fixed-dollar bet size in testing to
remove the galloping equity> effect. I proposed this method in
1999, and still use it to compare with the> compounded
performance. I confess, however, that my testing has failed to>
find as much performance bias as I suspected I would find. The method
is> most important when selecting markets for a portfolio.>
> Palmer Wright> -----
Original Message -----> From: Michael
Guess> To:
aaft_ta@xxxxxxxxxxxxxxx> Sent: Sunday, April
13, 2003 9:14 AM> Subject: [aaft_ta] Fwd: Re:
Available Portfolio testing programs for> TS2000i>
> > This is for Pat Mazur & Palmer
Wright. Others are invited to comment. I> forwarded these two
messages from another list because we have discussed> these
issues in the past. It appears one of the posts is saying
Trading> Recipes is in error in the way it calculates. In fact,
that it curve fits> data in a particular case. Comments are
invited.> > Michael> >
> > Your use of Yahoo! Groups is subject to the
Yahoo! Terms of Service.>
> Yahoo! Groups
Sponsor>
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