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Hi Fred –
If I look at the equity curves of two
trading systems, one that has been upward sloping and smooth, and the other
irregular, that tells me that one trading system has been better than the
other. If I project into the future, I only have past behavior to use as
a guide. So my preference is the trading system associated with the
better equity curve. Am I missing something?
Howard
-----Original Message-----
From: Fred [mailto:<font
size=2 face=Tahoma>fctonetti@xxxxxxxxx<font
size=2 face=Tahoma>]
Sent: Sunday, October
19, 2003 <span
>10:24 AM<font
size=2 face=Tahoma>
To: amibroker@xxxxxxxxxxxxxxx
Subject: Objective functions (was
RE: [amibroker] Re: Optimization -- again)
<font size=2
face="Courier New">That IS what I was trying to
say. I suspect because equity feed back <font size=2
face="Courier New">
is like looking in a rear view mirror, great for
letting us know
where we were and how we could have adjusted the
past to make it
better, but that's about it.
--- In amibroker@xxxxxxxxxxxxxxx, "Dave
Merrill" <dmerrill@xxxx>
wrote:
> don't think I get what you mean here fred.
>
> you can't be saying that metrics on the
equity curve of a trading
strategy
> or its parameters aren't useful, right?
that's the only thing we
have to
> judge the effectiveness of our methods and
settings.
>
> so you must be saying that equity feedback
isn't a useful concept,
> regardless of how you measure
"good" equity. do I have that right?
>
> if so, as I've said, my experience agrees --
none of the indicators
I've
> tried are wonderfully profitable when
auto-optimized this way. I
just cannot
> for the life of me understand why that's the
case, if backtests
tell us
> anything useful about future performance.
>
> if I've misunderstood completely, my
apoligies (:-)
>
> dave
> Like a lot of other things that
sound like they SHOULD work, I
have
> never found metrics related to
equity curve feedback to be of much
> value in the determination of
system parameter values.
>
> --- In amibroker@xxxxxxxxxxxxxxx,
"Dave Merrill" <dmerrill@xxxx>
> wrote:
> > interesting as usual howard
(:-). one piece I wanted to drill
into
> a bit.
> >
> > I wonder what the effect of
using performance measures that
> concentrate on
> > certain things at the
expense of others actually is.
> >
> > for example, my
auto-optimization stuff currently uses simple
> profit per bar
> > to choose parameter values.
my gut-level assumption was that
since
> it was
> > ignoring drawdown (among
other things), the resulting systems
might
> have
> > higher drawdown than I was
comfortable with, but that profit per
> bar should
> > be as good as the trading
method could produce.
> >
> > maybe that's not the case.
maybe by choosing a more balanced
> success metric,
> > not only would the other
factors not considered by my simplistic
> first pass
> > metric be improved, but
profitability might be improved as well.
> >
> > is this something you've
investigated or thought about? anyone
else?
> >
> > dave
> > Note ? it is
perfectly valid to have different objective
> functions for
> > different purposes.
For example, I might be modeling the
behavior
> of a
> > sector, say oil services,
with the intent of trading individual
> stocks based
> > on what I learn. In
this case, I want to identify periods of
> rising prices
> > with careful attention to
turning points, but without much
interest
> in
> > overall profit. On the
other hand, I might be modeling
individual
> high beta
> > tech stocks, in which case
my model includes several stop loss
> techniques
> > and I care most about
avoiding drawdowns.
> >
> >
> >
> > Thanks,
> >
> > Howard
>
>
>
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