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answers for Dingo:
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>1. You asked which metrics I might use for selecting "best"
parameters. Things like Sharpe Ratio, K-Ratio (smoothness), come to
mind. I have more than 200 objective functions that are calculations
like "RAR/MaxDD", etc. I have my favourites that come and
go. I have tools to decide which objective function works best when
the system is then carried forward out-of-sample.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>2. You asked about saving some data for out-of-sample. This
too is a complex issue. To me, there are two aspects to your
question. When I'm trying to decide if the system has merit, I do two
things. I will optimize for the "best" parameters (various ways, as
discussed previously) on data between 1994 and 2002. I then will run
that system/parameter set backward two years and forward one year. If the
results look good (hard to define, of course), then I will start to trade the
system. It is at this point that I will optimize up until the
current date to decide on the parameter set I will use for realtime
trading. I may repeat this process every three months, or so,
depending on how many trades are generated by the system.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>3. You said " I take it you're not a disciple
of stocks having their own individual params? ".
There is no way that I would EVER use a different
parameter set for individual stocks. Yes, MSFT does look different
than IBM. But tomorrow, they can both look the same or completely
different. I want one set of parameters that is going to work
on MSFT today and tomorrow, even if MSFT starts to look more like
IBM. We can all make systems that perfectly curve-fit to
each stock in the universe. To me, that's a good way to sell software, but
not to trade my money.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>4. I told you how I would use AB to sort my signals by "something",
such as P/E and then take only the top or bottom sorted stocks. I
think you are asking how I would do this outside of AB. I only use
AB to develop and test system ideas. I don't think there is any tool
better for the job and I have used most of them. Once I have a
system that I want to trade, I code the logic in a portfolio manager that I
developed in Delphi. That program knows exactly how much money is
available for taking new trades tomorrow and will rank the orders by various
means (proprietary but no mystery). It will then connect to my broker's
server and place the orders. I do not look at what is being traded
and I never look at a chart.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Whew... I think I answered everything for you. Again... just
my opinions and everybody has at least one.
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: dingo
[mailto:dingo@xxxxxxxxxx]Sent: Thursday, April 17, 2003 4:41
PMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker]
To compound or not to compound... that is the question
<FONT face=Arial color=#0000ff
size=2>Thanks Chuck!
<FONT face=Arial color=#0000ff
size=2>
My
further questions in red below:
<FONT face=Arial color=#0000ff
size=2>
<FONT
face=Tahoma size=2>-----Original Message-----From: Chuck
Rademacher [mailto:chuck_rademacher@xxxxxxxxxx] Sent: Thursday,
April 17, 2003 4:00 PMTo:
amibroker@xxxxxxxxxxxxxxxSubject: RE: [amibroker] To compound or
not to compound... that is the question
<FONT face=Arial color=#0000ff
size=2>Answers to Dingo's questions below:
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>1. Which column(s) to use when deciding which parameters are
"best"? I actually take the trade results to another program,
but given the columns that are available in AB, I would use total net profit
and/or average trade. Hopefully, some of the parameters will be
same at the top of both of those lists.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#ff0000
size=2>I too have another program and am
curious as to what calculated results would lead to the "best"
params?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>2. Which date ranges do I use? I pretty much always
use 1992 to current date.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#ff0000
size=2>You go all the way to the current
period? Do you not test out of sample?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>3. I use all 13,500 active and extinct stocks that have ever
traded since January, 1992 that were over $1 on at least one day and had an
average 50-day volume of 75,000 shares on at least one
day.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>4. Do I set aside any losing trades/stocks?
No. Since my largest loss can only be $10,000 and the profit can
be in the millions, I keep in all losing trades. As I explained in
previous email, the losses CAN BE more than the investment on a few short
trades.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>5. How do I determine that the best parameters (if I include
huge profitable trades) could be on the edge of the parameter
space? I can't really determine that information, nor do I
really care. I remove those stocks from my watchlist and
re-optimise. If I end up with a new list of huge winners, I
might repeat the process. I just don't want to choose a
parameter that squeezes in a couple of huge trades but is inferior on the
rest of the market.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#ff0000
size=2>You method sure is counter intuitive
until I think about your reasoning. I take it you're not a disciple of
stocks having their own individual params?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>6. How do I decide which signals to take every day (if I had
more signals than cash)? Using AB, I would place something that
I could sort the signals by that I have proven to myself increases the
likelihood of the signal being a good one. For simplicity, let's
say that I was an advocate of using low P/E for buying stocks (I'm
not). I would add a column to my Explore that showed the current
P/E.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#ff0000
size=2>If you were to make this decision
independent of AB then would you make the
decision?
<FONT face=Arial color=#ff0000
size=2>
<FONT
color=#0000ff>I'm quite happy to discuss any of this
further. Obviously, these are only my views and they are no
better than those you or others might have on the subject. I
have the benefit of trading for (too) many years and the possible
disadvantage of "being past it".<SPAN
class=843033320-17042003>
<FONT
color=#0000ff><SPAN
class=843033320-17042003>
<FONT
color=#0000ff><FONT
color=#ff0000>Do you ever re-optimize for the purpose of calc'ing new
params? If you do how do you decide when it is time to do
that?
<FONT
color=#0000ff><SPAN
class=843033320-17042003>
<FONT
color=#0000ff><FONT
color=#ff0000>Thanks for your
answers!
<FONT
color=#0000ff><SPAN
class=843033320-17042003>
<FONT
color=#0000ff><FONT
color=#ff0000>d
<BLOCKQUOTE
>
<FONT face="Times New Roman"
size=2>-----Original Message-----From: dingo
[mailto:dingo@xxxxxxxxxx]Sent: Thursday, April 17, 2003 11:10
AMTo: amibroker@xxxxxxxxxxxxxxxSubject: RE:
[amibroker] To compound or not to compound... that is the
question
<FONT face=Arial color=#0000ff
size=2>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?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Re your param selection method: Do I understand the steps
correctly:
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
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?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>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?
<SPAN
class=671315814-17042003><FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>3. You reoptimize the resultant set from step 2 and those are the
ones you use.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>Given the size of your trading capital how do you decide what
stocks to trade on a particular day?
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
size=2>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.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
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
<FONT face=Arial color=#0000ff
size=2>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
size=2>
<FONT face=Arial color=#0000ff
size=2>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.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
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.
<FONT face=Arial color=#0000ff
size=2>
<FONT face=Arial color=#0000ff
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>
<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.>
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