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This brings up an interesting point or two ...
1. Unless you are testing with fixed position sizes the outliers
should be judged based on % changes as opposed to dollar changes. In
fact % changes will work equally well for both.
2. I will agree that it would interesting to see if one removed all
the outlier trades what the results were like without reoptimizing
and then again with reoptimizing and then after reoptimizing looking
at the system performance again with all the trades back in.
Thought ?
--- In amibroker@xxxxxxxxxxxxxxx, "Anthony Faragasso" <ajf1111@xxxx>
wrote:
> Um,
>
> Reading your recent post...Brings to mind what I call Outlier
Trades.
>
> Outliers have some unusual property, such as excessive profit or
loss. The
> amount
> of excess is measured by the number of standard deviations away
from the
> typical ( average )
> value. For example, if a system's average profit is $ 200 per
trade and the
> standard deviation
> is $ 50, then a trade that produces $400 profit would be ( (400 -
200 ) / 50
> ) or 4 standard
> deviations from average.
>
> Outliers are usually considered to be 3 or more standard deviations
from
> average.
> Essentially, they are aberrations that cause system results to be
unfairly
> positively or negatively
> biased. By removing outlier trades from the evaluation process, a
new net
> profit figure can be
> calculated. This new select net profit figure, devoid of all
aberrations,
> may offer a cleaner, more
> realistic trading perspective. Obviously, Trend-following systems
designed
> to accept numerous small
> losses to capture the infrequent big move rely on Outliers to be
profitable.
> Therefore, whether or not
> it is better to remove outliers requires some thought.
>
> In general, systems that are heavily dependent on outlier trades
have
> artificially inflated or deflated
> net profit results. Since Outlier trades generally do not reoccur
on a
> regular basis, they should be
> removed to present a more realistic trading perspective. The goal
is to
> find a system with a select
> ( nonoutlier ) net profit figure worthy of trading.
>
> Example:
>
> Is a system worth trading if it only generates $ 400,000 in profit
without
> outlier trades as compared
> with its original $ 500,000 ?
>
> Anthony
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