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Dave,
Your missing something :) Pal wrote that he was missing the first two
trades. Here is a small example I just did in excel. Two accounts
both starting out with 1000. On the column on the left, I made 100%
profit on the first trade, 90% on the second, etc...The last trade I
made 10%, compounded. I only took out the 100% profitable trade on
the other column. Everything else the same. Quite a difference in
equity, corrrect?
1000 1000
2000 1900
3800 3420
6840 5814
11628 9302
18605 13954
27907 19535
39070 25396
50791 30475
60949 33522
67044
John
--- In amibroker@xxxxxxxxxxxxxxx, "Dave Merrill" <dmerrill@xxxx>
wrote:
> it's counterintuitive to some degree, but whether your gains or
losses come
> first doesn't effect the final outcome (with the possible minor
exception of
> interest effects). multiplication is commutative, so the order in
which
> several multiplications are done doesn't matter.
>
> $10k x 150% x 50% is the same as $10k x 50% x 150%
>
> because
>
> $10k x 150% = $15k and $15k * 50% = $7.5k
> and
> $10k x 50% = $5k and $5k * 150% = $7.5k
>
>
> or am I missing something?
>
> dave
> I have a lot of reading to catch up so I don't know if anybody
> responded to your equity line question.
>
> It sounds to me that you are compounding your results, correct?
If so
> a few big wins at the start of your equity line vs several losses
at
> the start will greatly affect your equity line. Check the first
> several trades. Here is where it has the greatest effect. A way
> around this is to test on a single issue or set amount.
>
> Regards,
> John
> --- In amibroker@xxxxxxxxxxxxxxx, "palsanand" <palsanand@xxxx>
wrote:
> > Hi,
> >
> > Here is an interesting observation on system testing:
> >
> > Say you run a system test over 10,000 bars of data, then print
out
> a
> > chart of the system's equity line. Then repeat the test, but
start
> > 100 bars later. Let's say two trades were included in those 100
> bars,
> > so they've been dropped. Now print the second equity line and
> compare
> > it to the first. You'd get exactly the same equity line, but 100
> bars
> > shorter. Right? Wrong!
> >
> > When I do this I get a radically different equity line on the
> second
> > test, i.e., they are not near-mirror images of each other. My
hunch
> > is that a form of the chaotician's "butterfly-effect" has
arisen:
> > changing any given trade's market position (long, short, flat)
will
> > effect in a chain reaction all the subsequent trades in complex
and
> > unexpected ways. Here dropping the first two trades could very
well
> > change the system's market position when the third trade is
> > calculated, and so on.
> >
> > I believe this observation has profound and unfortunate
> implications
> > for the robustness of system testing. It's a second and more
subtle
> > problem that lies behind the mere curve-fitting/optimization
> problem.
> >
> > If dropping a couple of early trades will always effect later
> trades,
> > then there's no truly "neutral" starting point with any test
data.
> > Where your test data starts determines the final test results
just
> as
> > much as your system does.
> >
> > The success or failure of many different mechanical systems is
> > predicated to a surprising and varying degree on the sequence of
> > events just prior to the first actual trade generated by the
> system.
> >
> > The trade setup and timing of the first trade can have a
profound
> > effect on the subsequent trading results. The circumstances and
> > timing of entry into the first trade can sometimes make a huge
> > difference in the overall trading performance.
> >
> > Regards,
> >
> > Pal
>
>
>
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