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Here's Criterion #2 (from the condensed version of five total).
Perform the following for each group of stocks (small, mid and large
cap) separately. With AA range setting on a range that contains a
bull, bear and sideways period (Mar 98- Mar03 is good enough),
commission setting at least .5% and in the reports tab, no trades,
backtest system on all stocks in the group. Now sort by # trades
(with most on top). Copy and paste into a spreadsheet. *Looking at
the top 20%* (ranked from greatest number of trades to fewest),
determine the % of stocks that have profit factors >1 (can copy down a
formula such as =IF(O2>1,1,0)). Also calculate mean (average in
Excel) and median PF of the top 20%. Looking for *minimum* >50% with
PFs >1, mean and median PF both >1, the higher the better. Rationale:
looking now to see how the system does on the stocks that it *most
actively trades*. Depending on the system, sometimes the results of
criterion 1 are distorted by many stocks with few trades. If the
system fails this test it doesn't necessarily mean it's not tradeable,
but you need to ask yourself why.
P.S. PF is the absolute value of the ratio of the profit of winners to
loss of losers.
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