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Howard, I was the one that wrote the message you responded to. Yes, I have
tested Powerkit. Its web site is www.byte-research.com. The developer is
Steve Notis. The 3-D graphs are cool, but the rest of the graphics are much
inferior to AB and lots of other programs out there. Nonetheless, the 3-D
figures are quite helpful in deciding how robust one's parameters are.
There is no programming used by the user in Powerkit. Notis has 3 canned
systems whose parameters you can manipulate via optimization. The 3
systems, all of which are volatility breakout systems, are (1) a variant of
the Turtle system, (2) a system called the Bollinger Breakout System, and
(3) a system developed by Notis himself called the Professional Breakout
System. All 3 are similar in their mode of action.
Regarding your point about ranking objective functions and coming up with a
single criterion used to judge the utility of a system, this is an
ambitious undertaking. For each weight you want to assign to a different
objective function, you will find probably dozens of opinions on how to
assign that weight. So, the ultimate equation or algorithm you develop
would have to be customizable to fit the personality of each individual
trader. That's a pretty big undertaking, and I don't know how successful
this might be. But it's worth a shot.
Al Venosa
Original Message:
-----------------
From: Howard Bandy howardbandy@xxxxxxxxx
Date: Wed, 22 Oct 2003 12:41:03 -0700
To: amibroker@xxxxxxxxxxxxxxx
Subject: RE: [amibroker] Invitation -- suggest your favorite objective
function
Hi Dave -
Thanks for the post.
One point I am making is that if we can describe our decision making
process, we can code that into a single objective function. In order to
automate the walkforward parameter selection process, all alternatives must
be ranked by their score on a single formula. Flatness of the response
surface is a good measure of robustness and can be incorporated, along with
profit, drawdown, and other factors, into one formula.
And you are right on when you say the objective function must match your
personality.
Have you tried Powerkit? Do you have the URL handy?
Howard
-----Original Message-----
From: Al Venosa [mailto:advenosa@xxxxxxxxxxxx]
Sent: Tuesday, October 21, 2003 5:58 PM
To: amibroker@xxxxxxxxxxxxxxx
Subject: Re: [amibroker] Invitation -- suggest your favorite objective
function
Dave,
I think there is a human component that has to be included in system
development. I am a believer in mechanical systems from the standpoint of
trade execution. However, when you are trying to develop your mechanical
system and to decide how best to implement it, you have to make some
judgments that I don't think can easily be automated into a single,
multidimensional matrix out of which comes a simple, black and white answer.
There will always be shades of gray that require human judgment. That's why
I sent along that figure (just an example). You have to develop your own
decision rules that are right for your personality, and those require you to
examine a multitude of objective functions to aid in your decision. There is
a software package called Powerkit, wherein the developer has included 3
canned systems that the user can tweak with any combination of parameter
values he wants to optimize. When the optimization is done, a 3-dimensional
graph automatically appears showing how the parameters affect profits in
3-dimensional space. You pick your parameter values based on the flatness of
the 3-D graph, which is a measure of robustness. TJ once told me that he
plans to develop a similar 3-D graphical capability that will blow Powerkit
out of the water. That is probably on the lower part of his priority list
right now, but it will come eventually.
Is that a sufficiently vague answer to your question? :-))
Al Venosa
----- Original Message -----
From: Dave Merrill <mailto:dmerrill@xxxxxxx>
To: amibroker@xxxxxxxxxxxxxxx
Sent: Tuesday, October 21, 2003 8:23 PM
Subject: RE: [amibroker] Invitation -- suggest your favorite objective
function
that's how I've approached it in general too, eyeballing the various result
outputs manually. but if possible, I'd like to systematize it, partly so it
can be an object comparison measure, and partly so it can become a part of
the trading system itself.
do you have any sense of how that might be done? it doesn't seem that the
example you gave boils down to simply weighting and summing the various
individual metrics.
any other ideas, anyone, on systematically combining them some other way
that captures more of what we do when we eyeball?
dave
I think there are numerous ways to evaluate your system rather than relying
on one objective function. For example, the other day, I was doing a
portfolio optimization to find out the optimum no. of positions I should
have open, given a certain amount of starting equity. I then plotted the
results of a few of the output parameters TJ now gives us in an optimization
output. See attached png file. If you were simply using one objective
function (CAR) without considering anything else, you would choose 5 open
positions because that's where CAR max'd out. However, MAR (=CAR/MDD) was
still rising as was UPI (you want that to be high), while UI (you want that
to be low) was still falling and RAR/MDD was still not max'd out yet. So,
when you look at 7 open positions, you see that UI had pretty much bottomed,
UPI, RAR/MDD, and MAR had finally topped. So, in this particular case, the
optimum no. of open positions would be selected to be 7, in my opinion,
rather than 5. So, using this tiny little example, I think you need to look
at several different objective functions and decide on the best strategy
based on the total story they all tell. I also like to use expectancy, which
I think is an extremely important and useful objective function. Sorry for
the multiple answer, but I don't think there is only one criterion upon
which to judge a trading system.
Al Venosa
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