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Re: [amibroker] Re: Expectancy - and related



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> Hope that gives you something stimulating to think about.

Dude, I'm totally overstimulated! Do you have a formula for PowerFactor?
BTW where did you end up settling in Australia?
GRANT

brian_z111 wrote:
> Grant,
> 
> Apologies for late comments (I've been to the beach but mentally 
> flagged your question before I left).
> 
> You might be interested in my generic opinion.
> 
> My trumpeting on expectancy, ProfitFactor and PowerFactor are based 
> on my efforts to identify and understand the root causes of equity 
> curve growth and variance (underneath it all is there anything else 
> that really concerns us).
> 
> It is rather like the difference between the average driver and a 
> professional driver. Average drivers, on their annual holidays, are 
> typically concerned about MPH, hours to arrival and fuel costs 
> whereas a professional driver (F1 racer) is a 'power user; concerned 
> about performance drivers e.g. engine power (HP or watts), oil 
> pressure, fuel efficiency, road conditions etc, oil temperature.
> 
> My personal approach is to focus my enquiry on the 'power' factors of 
> trading performance.
> 
> Hence the topic of my discussion with Gerry, who made some 
> interesting observations on PowerFactor and the key metrics that are 
> associated with it.
> 
> In Excel simulations of no win (breakeven) fair coin tosses, that I 
> have performed in the past, I was astounded at the range of possible 
> equity outcomes (no two equity curves are the same and they form a 
> cone that fans out on either side of the breakeven line and that 
> continues to expand with time OR N tosses of the coin).
> 
> This is what Ralph Vince was referring to when he said "that is just 
> how perverse the equity curve of a fair coin is".
> 
> He also gives the 1st and 2nd arcsine laws that predict the amount of 
> time we can expect the equity curve to stay on one side of the b/e 
> line and the max/min of the equity curve.
> 
> Ralp Vince "The Mathematics of Money Management".
> 
> The equity curve outcomes that I achieved in my 'push the excel buton 
> and see' trials were very similar to the simulated equity curves in 
> Howards QTS book - page 309.
> 
> My argument is:
> 
> - we can only trade successfully with an edge
> - the edge is based on the 'predictable behaviour' of a market event 
> e.g. chart pattern'
> - a predicatable pattern will exhibit the properties of a coin toss 
> (albeit a biased coin)
> - the equity outcomes of a biased coin toss are varied
> 
> therefore any evaluation method that doesn't reference variance is 
> unlikely to be useful to me.
> 
> That is why I have an interest in Binomial Simulation and metrics 
> like ProfitFactor and PowerFactor (they are close to the inputs of a 
> Binomial Simulator - which is alternative approach to MCS and it 
> doesn't rely on a rescrambling of the sample set.
> 
> So, based on my chosen approach I see no point in considering the 
> metrics of one equity curve - if you go OOS OR toss the coin again 
> you will get an entirely different equity outcome.
> 
> That is why I am more interested in what causes equity lines to grow 
> (increases the geometric mean) and controls equity curve drawdown (so 
> I can put the setting where I want it).
> 
> K-ration is a measure of equity curve smoothness whereas 
> RiskRewardRatio is a 'root cause' metric.
> 
> There are a lot of different opinions about what constitutes reward 
> and risk but if you are talking about RR as defined in Markowitz's 
> Modern Portfolio Theory then it is something I don't have a great 
> deal of understanding on but I definitely regard drawdown as 'the 
> risk', probability as teh drive and variance as a quantity not to be 
> ignored.
> 
> BTW my efforts with BS are complementary to Ralph Vinces work 
> (possibly it will make a little corner of his work more accessable to 
> the maths layperson). IMO RV's work is brilliant. He is the analyst 
> who 'blew me out of the water'.
> 
> Hope that gives you something stimulating to think about.
> 
> brian_z
> 
> --- In amibroker@xxxxxxxxxxxxxxx, Grant Noble <gruntus@xxx> wrote:
>>> The K-ratio isn't worth the space it takes up: RRR is simpler.
>> care to elaborate?
>>
>> gerryjoz wrote:
>>> In an earlier post, expectancy was associated with profit factor. 
>>> It is more closely related to payoff ratio.
>>> In Van Tharp's book, 2nd edition, "Trade your way...", page 204 et
>>> seq, he calculates 
>>> Expectancy = average profit/ # trades
>>>   divided by average loss.
>>> Payoff ratio is average profit/average loss,
>>> so 
>>> Expectancy = payoff ratio/# trades.
>>> --which can give very low numbers, and makes the concept rather
>>> dubious if you are using it as an absolute value for comparing 
> systems
>>> with different numbers of trades. It might be better to use 
> trades per
>>> annum.
>>> To be fair Van Tharp only gives that way of calculating 
> expectancy as
>>> a default if the risk of a trade isn't able to be calculated 
> taking
>>> into account a pre-determined proportion of equity. For that, you 
> need
>>> to read the whole chapter.
>>> Personally i find CAR/MDD, RRR more relevant, along with the raw
>>> Payoff ratio.
>>>   
>>> The K-ratio isn't worth the space it takes up: RRR is simpler.
>>>
>>> regards 
>>> Gerry
>>>
>>>
>>>
>>>
>>>
>>> ------------------------------------
>>>
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>>>
>>> To get support from AmiBroker please send an e-mail directly to 
>>> SUPPORT {at} amibroker.com
>>>
>>> For NEW RELEASE ANNOUNCEMENTS and other news always check DEVLOG:
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>>>
>>>
>>>
>>>
> 
> 
> 
> ------------------------------------
> 
> Please note that this group is for discussion between users only.
> 
> To get support from AmiBroker please send an e-mail directly to 
> SUPPORT {at} amibroker.com
> 
> For NEW RELEASE ANNOUNCEMENTS and other news always check DEVLOG:
> http://www.amibroker.com/devlog/
> 
> For other support material please check also:
> http://www.amibroker.com/support.html
> Yahoo! Groups Links
> 
> 
> 
> 

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