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I sent this response 20 minutes ago but I guess it got lost in the
ether:
I've been playing with the question I asked about can CAR be
calculated just on the data in the Optimizer data and it looks like a
close approximation can be achieved by multiplying the RAR ann by the
Exposure (percentage divided by 100).
This works since exposure is another measure of what period of time
the system was active.
d
--- In amibroker@xxxxxxxxxxxxxxx, "Fred" <fctonetti@xxxx> wrote:
> In order to calculate CAR one needs to know over what period of
time
> the system was active.
>
> But ...
>
> Assuming for the moment that one wanted to optimize on MAR, NET %
> Profit serves equally well as CAR for the purposes of ordering the
> results.
>
> For example in the CSV which you are referring to, I assume you are
> exporting and then importing into Excel, you could simply calculate
a
> new column X = Net% / -MaxDD and sort descending on X.
>
> Although this may not provide CAR and in turn MAR it will order the
> results in the same way as MAR would.
>
> --- In amibroker@xxxxxxxxxxxxxxx, "dingo" <dingo@xxxx> wrote:
> > The big pain in the butt with CAR, and MAR is that those columns
> are not
> > in the CSV file produced by the Optimizer and there is no way to
> > addcolumn to that data. So, you to do it manually. Do you know a
> way
> > that CAR can be calculated using just the data from the optimizer?
> > (Don't look at the backtest results)
> >
> > d
> >
> > -----Original Message-----
> > From: Fred [mailto:fctonetti@x...]
> > Sent: Thursday, April 17, 2003 12:22 PM
> > To: amibroker@xxxxxxxxxxxxxxx
> > Subject: [amibroker] Re: To compound or not to compound... that
is
> the
> > question
> >
> >
> > CAR = Cumulative Annual Return and is the same as annual system %
> > return in the AB Performance Report
> >
> > MDD = Maximum System % Drawdown and is in the AB Performance
Report
> >
> > MAR = CAR / MDD This does NOT show up in the backtest reports but
> can
> > be calculated easilly enough.
> >
> > --- In amibroker@xxxxxxxxxxxxxxx, "nkis22" <nkishor@xxxx> wrote:
> > > Dimitris,
> > > I want to learn some things about backtesting now. What is
> > > CAR? MAR? MDD? I don't see these columns when I optimize - just
> > > learnt how to run one. Is there a way to get this columns, the
> only
> > > one that I can see is RAR.
> > >
> > > tia
> > > nand
> > >
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, "Fred" <fctonetti@xxxx> wrote:
> > > > Dingo,
> > > >
> > > > 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@x]
> > > > > 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@x...]
> > > > > 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@x...]
> > > > > > 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@x...]
> > > > > > 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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