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Chris,
Re Profit Factor and Expectancy
I thought you might be interested since you focus on Expectancy as
the driver, which is similar to my focus on PF (it's the first place
I look).
ProfitFactor and Expectancy are kissing cousins, mathematically and
conceptually.
> Profitunity = Expectancy per trade * number of trades per time
period.
>
Yes, I believe VanTharp first used the term Expectancy, although I
haven't read his book. That is what I meant (I picked the term up
from others who must have read him).
AB's version of PF is correct so that:
gross profit - gross loss = net profit
net profit/number of trades = expectancy in $ (on a per trade basis)
Another way to define ProfitFactor is:
Number Wins/Number Losses * average % Win/average % Loss
To standardize the backtests over time I am only interested in the %
win or loss so that is how I first started using that definition of
PF. Then later on I started to see what a useful evaluation metric it
was.
Since I start by looking at the PF, and then look at Expectancy or
PA% later on, I thought I would share my observations with you.
When doing design work PF has the advantage of giving us two metrics
that tell us a lot about the trade e.g. if the expectancy is OK but
the W/L ratio is < 50% I don't like it - I am not comfortable with
long losing sequences followed by one big win (not only
temperamentally but also based on my rules for design).
When I look at the ave%W/ave%L it tells me how much of the positive
PF is due to the W/L ratio and how much is due to my stops e.g. you
can leave your stops the same and change the signal to benchmark
signals against each other.
These kinds of things are vitally related to the design process.
After I think I have an interesting trade I look at expectancy/PA% to
see if I it is profitable cf to costs (commissions etc - I don't
include commissions in backtests - I add them mentally later).
Since ave%W/ave%L is only a ratio it is possible to have good PF but
not have a paying system e.g. if your ave win is 0.2% and your ave
loss is 0.1% you have a good ratio but you dont actually win much
i.e. the expectancy is low.
It also brings risk into the equation since if you increase the risk
(move your stops) for the same PF the Expectancy goes up.
Eventually you have to look at the %PA since that pays the annual
grocery bill.
Obviously high frequency * high expectancy is a very exciting year
e.g. I consider turn around time for my systems - it is great to have
a high powered trade but if you are in for two days and then have to
wait 6 days for another trade to come along your frequency/PA% comes
right down.
There is a lot in what I am saying - I have spent 100 of hours in
theroretical and practical consideration of evaluation - I have only
put a cryptic explanation here.
(In my first post I also meant to add that variance in the equity
curve is derived from binomial probability of the W/L and variance in
the distribution of the trades, where the trades are measured in %
+_ )
I understand that is probably a bit more info than you wanted but I
have talked about it a little in the past here and there and I
promised a couple of guys I would explain some more one day - today
was the day.
brian_z
--- In amibroker@xxxxxxxxxxxxxxx, ChrisB <kris45mar@xxx> wrote:
>
> Hi Brian
>
> Thanks for this extra comment.
>
> Your immediate prior post had me confused because by PF I assumed
you
> meant Profit Factor and
> the nearest I can understand this, is that
>
> Profit Factor = Gross Profit / Gross Loss
> or as in the AB reports:
> Profit Factor = Total Profit / Total Loss.
>
> I didn't understand how this related to a time series or per annum
gain.
>
> However reading between the lines of this last post, I think you
may be
> referring to van Tharp's (was it he who coined this phrase? )
> Profitunity factor?
>
> Where ....
>
> Profitunity = Expectancy per trade * number of trades per time
period.
>
> In which case it makes a little more sense to me.
>
> If not, I am happy to stand corrected.
>
> Regards
>
> ChrisB
> brian_z111 wrote:
> >
> > > I like PF (a derivation of it) and expectancy is really PF
> > translated
> > > in return over time (PA%).
> >
> > FTR - to explain further what I meant about PF (my take on it).
> >
> > PF is the trades profile (a kind of quality measure) comprising
two
> > components (W/L ratio and ave%W/ave%L ratio).
> > The W/L ratio tells us something about the buy signal whereas the
%
> > W/L ratio tells us something about the exits (profit and loss
stops)
> > although they are interdependent.
> >
> > The W/L ratio is binomial and indicates the tendency towards runs
> > (losing/winning streaks) and the %W/%L quantifies that e.g. as an
> > equity curve.
> >
> > PF is the theoretical edge (as ratio).
> >
> > Looking at the two components of PF can tell us more about the
trade
> > than looking at PF alone.
> >
> > Expectancy standardises the edge (PF) to a per trade basis and
> > quantifies it (as %).
> >
> > Expectancy * trade frequency (trades per periods e.g. year)
> > quantifies the edge as return per period e.g. year.
> >
> > brian_z
> >
> > --- In amibroker@xxxxxxxxx ps.com
> > <mailto:amibroker%40yahoogroups.com>, "brian_z111"
<brian_z111@ ...>
> > wrote:
> > >
> > > Chris,
> > >
> > > > This won't help you much but I thought I would chip in here,
> > anyway.
> > >
> > > On the contrary - I think it is very apt and insightful.
> > >
> > > > I used to spend *hours* every week manually updating data etc
> > > > . What an agonising waste of time!.
> > >
> > > I agree with you.
> > > Efficient use of time (a.k.a what works?) and leaving risk
behind
> > are
> > > two major drivers behind the development of my style e.g.
> > fundamental
> > > analysis requires a constant renewal of information whereas with
> > > technical analysis the acquisition phase diminishes with time.
> > >
> > > > Support and resistance are
> > > > still at the same level, and is never tick precise.
> > >
> > > I agree S&R is not tick precise.
> > > In fact I am inclined to the view that it is generally a little
> > > imprecise.
> > >
> > > Take a classical (theortical) example of support - one buyer
with
> > > enough clout to make a difference is buying at a target - say
it is
> > a
> > > whole number $20.00. In real life he or she is a person with
> > emotion
> > > so 20 becomes 19.95. Also in real life the order has to be
> > physically
> > > filled so spreads and market movement around 20.00 means 'buy at
> > 20'
> > > becomes +- 0.20.
> > >
> > > I am not a long term intraday trader but my observations so far
at
> > > that S&R are easily identified on intraday charts than EOD
charts.
> > >
> > > > The issue is: is the expectancy positive and can I continue to
> > > >trade
> > > > this. All three maintained a positive expectancy and when this
> > fell
> > > >away
> > > > this was the "stop trading this system" signal.
> > >
> > > I agree that expectancy is a significant metric.
> > > I like PF (a derivation of it) and expectancy is really PF
> > translated
> > > in return over time (PA%).
> > >
> > > PF is like the HP of an engine.
> > > The more grunt you have the less you are affected by the little
> > bumps
> > > (data errors, slippage, variance etc).
> > >
> > > Even a coin with a strong bias will produce its run of outs.
> > >
> > >
> > > Thanks for your post,
> > >
> > > Good stuff.
> > >
> > > brian_z
> > >
> > >
> > >
> > > --- In amibroker@xxxxxxxxx ps.com
> > <mailto:amibroker%40yahoogroups.com>, ChrisB <kris45mar@> wrote:
> > > >
> > > > Brian
> > > >
> > > > This won't help you much but I thought I would chip in here,
> > anyway.
> > > >
> > > > I used to spend *hours* every week manually updating data,
> > checking
> > > > splits consolidations rights issues etc every week with data
from
> > > > Justdata comparing with ASX published data in the back of the
old
> > > Shares
> > > > magazine. What an agonising waste of time!.
> > > >
> > > > Now I only look at Fx. With this being retail broker based the
> > data
> > > is
> > > > never clean.
> > > >
> > > > Toward the end of last year I ran a simple once a day system
on
> > > three
> > > > different (demo: yes I know) platforms, entering Limit entries
> > for
> > > the
> > > > day in the morning and off to work for the day, as a kind of
real
> > > time
> > > > walk forward test. Surprising how much time this took to do.
> > > >
> > > > In the evening most times all three platforms had either
filled
> > my
> > > > orders or not, but it was surprising to see how many times
> > > Platform1 and
> > > > Platform2 would have filled my limit entry, and one of them
had
> > got
> > > > stopped out, whereas the other had got to the Take Profit. On
> > other
> > > days
> > > > Platform1 and Platform2 would have filled my entry order but
> > > Platform3
> > > > ran without me: a missed trading opportunity.
> > > > At the end of the month all three platforms were in profit,
just
> > by
> > > > different amounts.
> > > >
> > > > Because I get my Fx data through MT3 plugin these are not
exactly
> > > the
> > > > same prices as my live trading account.
> > > > To be honest I don't think this matters. Support and
resistance
> > are
> > > > still at the same level, and is never tick precise.
> > > > Others may choose to disagree.
> > > >
> > > > Just following three Fx data providers will show you by how
much
> > > each
> > > > can differ, notwithstanding the different time zones and
> > therefore
> > > > differing candles we get. And that is not even talking about
> > > economic
> > > > news times!
> > > >
> > > > The lesson for me was clear : the individual trade result is
> > > irrelevant.
> > > > The issue is: is the expectancy positive and can I continue to
> > > trade
> > > > this. All three maintained a positive expectancy and when this
> > fell
> > > >away
> > > > this was the "stop trading this system" signal.
> > > >
> > > > That to me is one of the advantages of Fx : no database
hassles.
> > No
> > > > company reports, no shareholder statements, no Chess holder
> > > statements
> > > > and the inevitable shareholder bits of paper coming through
the
> > > mail
> > > > after I have long closed the trades.
> > > >
> > > > The other way to think about it would be: well if Provider1
has
> > > > different Ticks to Provider2, just backtest and optimize for
each
> > > > respectively over the same time frame and the same tickers. If
> > your
> > > > parameters and results differ widely this may be a message
that
> > > your
> > > > system is marginal. On the other hand, if all is well and the
> > > results
> > > > are very similar, you have just done your own "should I care
how
> > > clean
> > > > my data is?" test.
> > > >
> > > > Regards
> > > > ChrisB
> > > >
> > > > brian_z111 wrote:
> > > > >
> > > > > Steve,
> > > > >
> > > > > I would like to know how I can decide if EOD data is clean
or if
> > > > > intraday data is up to the demands.
> > > > >
> > > > > It is a subject that I don't see much quality discussion on.
> > > > >
> > > > > For EOD data my best ideas so far are:
> > > > >
> > > > > 1) Data includes raw data - I can compare raw data to other
> > > providers
> > > > > raw data - I can't compare it to an absolute benchmark
because
> > > there
> > > > > isn't one.
> > > > >
> > > > > 2) Data inlcudes a record of all split events and the
> > > corresponding
> > > > > split factor I can check the event records independently and
> > check
> > > > > the math.
> > > > >
> > > > > 3) I can apply the split factor or see the results of it's
> > > > > application so I can check the math.
> > > > >
> > > > > 4) The event calendar should inlcude non-trading days for
the
> > > market
> > > > > and stand down trading days for companies.
> > > > >
> > > > > 5) Data can be padded or unpadded (optional).
> > > > >
> > > > > I can't think of any other way to measure data quality.
> > > > >
> > > > > I don't think any data provider meets the criteria - maybe a
> > few.
> > > > >
> > > > > For intraday:
> > > > >
> > > > > What could I possibly do?
> > > > >
> > > > > Buy raw tick data from several providers, compare them for a
> > > > > consensus and filter it myself ?
> > > > >
> > > > > I am at a loss on that one.
> > > > >
> > > > > Of course another option is to trade in such a way that bad
> > ticks
> > > and
> > > > > unclean EOD data don't affect the outcomes very much (that
> > could
> > > be a
> > > > > lot easier than the above).
> > > > >
> > > > > brian_z
> > > > >
> > > > > --- In amibroker@xxxxxxxxx ps.com
> > > > > <mailto:amibroker% 40yahoogroups. com>, "scourt2000"
> > > <stevehite@ ..> wrote:
> > > > > >
> > > > > >
> > > > > > Mark,
> > > > > >
> > > > > > No successful intraday real-time trader who does this
full-
> > time
> > > > > would
> > > > > > ever drop eSignal for Gary's new real-time service.
> > > > > >
> > > > > > It's a pennywise and pound-foolish decision.
> > > > > >
> > > > > > He's fine for clean end-of-day data. But he's way out of
his
> > > > > league
> > > > > > for the demands of intraday real-time trading.
> > > > > >
> > > > > >
> > > > > > --- In amibroker@xxxxxxxxx ps.com
> > > > > <mailto:amibroker% 40yahoogroups. com>, "MarkK" <MailYahoo@>
> > wrote:
> > > > > > >
> > > > > > > Brian,
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > So far I am very happy with the QP RT beta testing
> > > > > > >
> > > > > > > I believe that when it goes live they will be taking a
lot
> > of
> > > > > > customers away
> > > > > > > from the other services
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > It is a much better value than other things out there,
and
> > so
> > > far
> > > > > > the data
> > > > > > > has been accurate
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > MarkK
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > _____
> > > > > > >
> > > > > > > From: amibroker@xxxxxxxxx ps.com <mailto:amibroker%
> > > 40yahoogroups. com>
> > > > > [mailto:amibroker@ yahoogrou ps.com <mailto:amibroker%
> > > 40yahoogroups. com>]
> > > > > > On Behalf
> > > > > > > Of brian_z111
> > > > > > > Sent: Friday, February 15, 2008 7:47 AM
> > > > > > > To: amibroker@xxxxxxxxx ps.com <mailto:amibroker%
> > > 40yahoogroups. com>
> > > > > > > Subject: [amibroker] Re: AP's RT data feed - for MarkK
> > > > > > >
> > > > > > >
> > > > > > >
> > > > > > > > I am looking for an RT data provider. I used eSignal
for a
> > > > > couple
> > > > > > > >of years, then quit and am ready to resart, but don't
likr
> > > their
> > > > > > > >fees.
> > > > > > >
> > > > > > > QuoteTracker and LiveCharts have the $60 and $20
version of
> > > > > eSignal
> > > > > > > if you don't mind less backfill and fewer symbols.
> > > > > > >
> > > > > > > I have read of a few issues with LiveCharts but surely
we
> > can
> > > > > make
> > > > > > it
> > > > > > > work (a lot of the problems also came about because
people
> > > still
> > > > > > > wanted it free after it changed to pay for play a year
ago -
> >
> > > of
> > > > > > > course it doesn't work if ou don't pay).
> > > > > > >
> > > > > > > A couple of users said it was slow - I don't know - I
> > haven't
> > > > > tried
> > > > > > > it yet but I will.
> > > > > > >
> > > > > > > brian_z
> > > > > > >
> > > > > > > --- In amibroker@xxxxxxxxx <mailto:amibroker%
> > 40yahoogroups.
> > > com>
> > > > > > ps.com, "Ara
> > > > > > > Kaloustian" <ara1@> wrote:
> > > > > > > >
> > > > > > > > Mark,
> > > > > > > >
> > > > > > > > I am looking for an RT data provider. I used eSignal
for a
> > > > > couple
> > > > > > > of years, then quit and am ready to resart, but don't
likr
> > > their
> > > > > > fees.
> > > > > > > >
> > > > > > > > Would you elaborate a bit on AP. Never heard of them
> > > > > > > >
> > > > > > > > Tx
> > > > > > > >
> > > > > > > > Ara
> > > > > > > > ----- Original Message -----
> > > > > > > > From: MarkK
> > > > > > > > To: amibroker@xxxxxxxxx <mailto:amibroker%
40yahoogroups.
> > > com>
> > > > > > ps.com
> > > > > > > > Sent: Friday, February 15, 2008 3:36 AM
> > > > > > > > Subject: RE: [amibroker] New EOD data feed other than
> > Quotes
> > > > > Plus
> > > > > > > >
> > > > > > > >
> > > > > > > > Dan,
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > I use QP for EOD data, and am happy with the
fundamental
> > > data
> > > > > > > that they provide. Not sure there is another service
that
> > > offers
> > > > > as
> > > > > > > much in that area
> > > > > > > >
> > > > > > > > I also use Fast Track for EOD data. Some market
internal
> > > data,
> > > > > > > no fundamental data to speak of, however the data has
been
> > > > > cleaner
> > > > > > > than QP EOD day data. For Mutual fund data not sure
there
> > is a
> > > > > > > better service out there.
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > Have been an e-signal subscriber for RT data now for 4
> > > years. I
> > > > > > > cancelled my subscription since they kept raising their
> > > prices,
> > > > > and
> > > > > > > went to IQ feed. Used them for a month then they raised
> > their
> > > > > > > prices. Luckily I was abe to beta test AP's RT data
feed.
> > So
> > > far
> > > > > > > they have been very responsive on the changed needed to
> > make
> > > it
> > > > > an
> > > > > > > excellent RT service, and at a reasonable price.
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > I would suggest you get hold of Gary at QP and let him
> > know
> > > > > about
> > > > > > > your issue. I would think you will become a satisfied
> > customer
> > > > > once
> > > > > > > again
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > MarkK
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > ------------ --------- --------- --------- --------- -
----
> > --
> > > -- -
> > > > > > > ----------
> > > > > > > >
> > > > > > > > From: amibroker@xxxxxxxxx <mailto:amibroker%
> > 40yahoogroups.
> > > com>
> > > > > > ps.com
> > > > > > > [mailto:amibroker@ yahoogrou <mailto:amibroker%
> > > 40yahoogroups. com>
> > > > > > ps.com] On
> > > > > > > Behalf Of Dan Clark
> > > > > > > > Sent: Thursday, February 14, 2008 11:56 PM
> > > > > > > > To: amibroker@xxxxxxxxx <mailto:amibroker%
40yahoogroups.
> > > com>
> > > > > > ps.com
> > > > > > > > Subject: [amibroker] New EOD data feed other than
Quotes
> > > Plus
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > I've been using Quotes Plus data for the last 2-1/2
years.
> > > > > > > Overall, I've been very happy with Quotes Plus data and
Gary
> > > > > > Lyben's
> > > > > > > (owner/president) responsiveness. That said.
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > In the last few days, I've swapped several e-mails
about a
> > > > > minor
> > > > > > > billing issue (credit card renewed with different
number)
> > > with a
> > > > > > > woman in his billing department. What should have been a
> > very
> > > > > minor
> > > > > > > clerical issue left me feeling EXTREMELY angry and
offended.
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > I vowed to switch my data feed from Quotes Plus to
> > another
> > > data
> > > > > > > feed as soon as possible. This is a major issue for me
> > > because of
> > > > > > > the amount of AFL recoding involved, but I can no
longer do
> > > > > > business
> > > > > > > with Quotes Plus.
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > I need some options for other EOD data feeds. What EOD
> > > service
> > > > > > > are you using? What has your experience been? What are
the
> > > > > > > alternatives now?
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > Thanks and regards,
> > > > > > > >
> > > > > > > >
> > > > > > > >
> > > > > > > > Dan.
> > > > > > > >
> > > > > > >
> > > > > >
> > > > >
> > > > >
> > > >
> > > >
> > > > --
> > > > Regards
> > > >
> > > > ChrisB
> > > >
> > >
> >
> >
>
>
> --
> Regards
>
> ChrisB
>
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