> <mailto:
amibroker%40yahoogroups.com>, Grant Noble <gruntus@> wrote:
> > >
> > > > 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
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