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Yes I
understand the concept of using logarithmic data. I might have given you the
impression in a prior muddled repsonse that I didn't but TODAY I do - no
guarantees about the future. ;-)
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And
yes I'd like to hear Chuck's reply also - thanks for yours!
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<FONT
face=Tahoma size=2>-----Original Message-----From: Fred
[mailto:fctonetti@xxxxxxxxx] Sent: Thursday, April 17, 2003 11:59
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: [amibroker] Re:
To compound or not to compound... that is the
questionDingo,I assume you addressed this to
Chuck, but I'll give you my own take on 1a of what you asked
...1a. I have tried lots of combinations of things to optimize
on and have pretty much settled on what I and some others refer to as MAR
which is CAR / MDD. This has the advantage of finding parameters
that simultaneously elevate CAR while keeping down DD's. There are
other steps involved here to assure that the parameters chosen are as
robust as they can be and sometimes at the cost of a little MAR but
that's another topic. When writing systems and testing them for full
compounding whether that compounding takes the form of increased bet
size or increased number of simultaneous trades that can be made, the
equity curve should be as close as possible to a straight line on a
log scale. KRatio is an indication of the straightness of the equity
curve but I also like to see it plotted. The other advantage to
looking at equity curves on a log scale is that for example a 10% DD
looks the same regardless of where on the chart it occurs. If you
plot the equity curve on an arithmetic scale the farther to the right
the larger dd's occur the more insignificant (falsely) they appear to
be.--- In amibroker@xxxxxxxxxxxxxxx, "dingo" <dingo@xxxx>
wrote:> 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?> > Re your
param selection method: Do I understand the steps correctly:
> > 1. You optimize for the best params
> a. Based on what
column or calculation?>
b. What date ranges would you be using
currently?> c. What
subset of stocks would you be optmizing on?> > 2. You set
aside the the top 100.>
a. Do you set aside any at the
bottom?> b. How did you
determine that the first set of params would be> at the edge of the
parameter space? > > 3. You reoptimize the resultant set
from step 2 and those are the ones> you use.> >
Given the size of your trading capital how do you decide what stocks
to> trade on a particular day?> > 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.> > Thanks
for any comments you choose to make.> > d> >
-----Original Message-----> From: Chuck Rademacher
[mailto:chuck_rademacher@xxxx] > Sent: Thursday, April 17, 2003 6:58
AM> To: amibroker@xxxxxxxxxxxxxxx> Subject: [amibroker] To
compound or not to compound... that is the> question> >
> Reply to Fred:> > Yes... and no.>
> Absolutely, in real time trading I am compounding.>
> 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.>
> 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. > > When choosing parameters, I want
plain vanilla trades, each standing on> their own merit, with no
compounding.> > 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. > >
-----Original Message-----> From: Fred [mailto:fctonetti@xxxx]>
Sent: Thursday, April 17, 2003 3:16 AM> To:
amibroker@xxxxxxxxxxxxxxx> Subject: [amibroker] FW: [aaft_ta] Re:
TradingRecipes> > > Chuck,> > 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> > > > > > > >
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