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Objective functions (was RE: [amibroker] Re: Optimization -- again)



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Howard,

With regards to equity feedback what I think I was trying to say was 
that I have not found equity feedback to be a particularly good 
methodology of deciding what to trade as opposed to evaluating a 
particular trading system where I would certainly agree that the 
curve itself and the statistics that rleate to it are very 
important.  For example I've never found attempting to measure and 
then utilize how well some particular security moved during the last 
up move of what ever magnitude you want to describe the up move as 
being as indicative of what's likely to happen during the next up 
move.

As far as markets changing characteristcs over time and the inability 
of at least SOME systems to adjust to those, I would certainly agree 
that this is true in a lot of cases.  My particular preference in 
this regard is to write systems that make their own adjustments on 
the fly for changing conditions as opposed to testing short samples 
of data on a walk forward basis.

Fred

--- In amibroker@xxxxxxxxxxxxxxx, "Howard Bandy" <howardbandy@xxxx> 
wrote:
> 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:fctonetti@x...] 
> Sent: Sunday, October 19, 2003 10:24 AM
> To: amibroker@xxxxxxxxxxxxxxx
> Subject: Objective functions (was RE: [amibroker] Re: Optimization -
- again)
> 
>  
> 
> That IS what I was trying to say.  I suspect because equity feed 
back 
> 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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