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> As long as you get where you want to go.
>
> A fourth opinion FWIW:
>
> PP is a specific term used by Pardo.
> He doesn't define it precisely, or give a method (he just says buy
> the bottom and sell the top).
I agree that he's not very precise.
>
> I have used the sum of the absolute value of the daily ROC to
> calculate PerfectEquity (PP) for daily bars, on the close (I have
> used it to calculate a Straight Line Ratio or SLR which is a measure
> of absolute PP for EOD traders).
Good idea - why didn't I think of it? Better yet (allowing both long and
short positions):
PP=Cum(Max(abs(H-Ref(L,-1)),abs(L-Ref(H,-1))));
You have to deduct commissions, of course.
Regards,
Thomas
>
> ZigZag will give you a smoothed variant of PP (if we allow ourselves
> free rein with Pardo's idea).
>
> Howard uses ZZ, in his book, specifically for stock selection based
> on cycle analysis.
>
> He does say that "issues with regular price patterns lend themselves
> to profitable quantitative analysis" but he leaves the trading
> solutions up to us.
>
> If you use ZZ in model efficiency analysis you are measuring your
> systems efficiency in synchronizing to the cycle/patterns for that
> dataset and that test period (if it wasn't synchronized then it
> wouldn't return a good ME - 100% ME would be a set of rules that
> perfectly models the ZZ cycles).
>
> Same for all ME's irrespective of the definition of the PP.
>
> It could be an interesting approach - I don't know I haven't tried it
> so far. To me it is a 'pursuit of the Holy Grail' approach.
> My bias is to be a street fighter and just take whatever I can get
> until something better comes along (I have the trading loyalty of an
> alleycat!).
>
> Howard's method/code can be adapted to give you one answer (if you
> were always in the trade, with a reversal signal, then eq will give
> you the abs sum of the zigs and the zags).
>
> Otherwise you have to calc by defining the PivotPoint (as Howard
> does) and then summing the absolute difference between the value
> (when) of the current and previous pivot (at least that is one way I
> have done it in the past).
>
> If you just want to trade one way e.g. bullish, Howard's example
> contains your answer.
>
> brian_z
>
> --- In amibroker@xxxxxxxxxxxxxxx, Thomas Ludwig <Thomas.Ludwig@xxx>
>
> wrote:
> > Brian,
> >
> > thanks for your answer.
> >
> > > Calculating PP is made a little more interesting if we
>
> define 'top'
>
> > > as the bar high and 'bottom' as the bar low, for every pivot
>
> point.
>
> > > However, for simplicity we can assume we are only talking about
>
> the
>
> > > close (line chart and not a bar chart).
> > > PP is definitely not available from zigzag - forget it - it may
>
> well
>
> > > be useful info but we can't call it PP (Howards uses it in his
>
> book -
>
> > > he uses it in a slightly different way which is valid but it is
>
> not
>
> > > PP as defined by Pardo and others).
> >
> > I'm not sure why you think that PP is not available from zigzag.
>
> While
>
> > there might be more complicated methods to calculate PP (depending
>
> on
>
> > your definition), zigzag is a good approximation in my opinion. And
>
> I
>
> > need a handy formula since I want to add it as one additional
>
> metric to
>
> > my WF IS and OOS equity curves.
> >
> > Regards,
> >
> > Thomas
> >
> > > Note: How you calculate PP depends on your definition of a Pivot.
> > >
> > > IMO PP is a rather complicated way to go about it.
> > > I am not certain that it is even the best method (where best ==
>
> the
>
> > > method that returns a consistent and effective measure of the
> > > relative value of a system compared to other systems and compared
>
> to
>
> > > buy&hold).
> > > In fact I think it is a metric that encourages overfitting since
>
> ME
>
> > > could be very high if you optimise until you sync with the pivot
> > > cycles (unless of course you believe that the cycle lengths will
> > > persist, in which case you have found your ElDorado).
> > >
> > > Also another personal opinion - Pardo's explanation of DOF
> > > doesn't hold any value for traders (I haven't found one that
> > > does). The discussions, in this forum, on sensitivity analysis,
> > > and other evaluation discussions involving Fred and Howard, were
> > > much more topical and have much more relevance to real life
> > > trading.
> > >
> > > Another approach you might like to think about:
> > >
> > > a) for benchmarking against the buy&hold (note that for a
>
> freelance
>
> > > trader this is a different cup of tea compared to institutional
> > > benchmarking)
> > >
> > > - since we believe our entry offers us an advantage over the
>
> dumbluck
>
> > > B&H and our exits (stops) are fixed by the system rules i.e. they
>
> are
>
> > > the same for every trade - we can compare effectiveness of the
> > > entries by setting the buy = every bar (use the same price as the
> > > system buy price).
> > >
> > > Reason == to test our entries we need to compare their
>
> effectiveness
>
> > > against a random entry. If we make enough random entries then the
>
> law
>
> > > of averages means eventually we will end up entering on every bar
>
> an
>
> > > equal number of times..
> > >
> > > Note: we need to use the same exit rules as per the system.
> > > Model efficiency == system metric/every bar entry metric.
> > >
> > > b) to rank a system against other systems:
> > >
> > > compare your evaluation metric against the same metric for other
> > > systems USING THE SAME DATA/PERIODS (allow for sample error).
> > >
> > > Note: the metric you use is up to you i.e. personal choice OR as
>
> Fred
>
> > > would say "whatever floats your boat".
> > >
> > >
> > >
> > > brian_z
> > >
> > >
> > > --- In amibroker@xxxxxxxxxxxxxxx, Thomas Ludwig <Thomas.Ludwig@>
> > >
> > > wrote:
> > > > Hi all,
> > > >
> > > > Rober Pardo suggests in his book "The Evaluation and
>
> Optimization
>
> > > of
> > >
> > > > Trading Strategies" the calculation of "Perfect Profit" (PP)
> > >
> > > which "is
> > >
> > > > the sum total of all of the potential profit that could be
>
> realized
>
> > > by
> > >
> > > > buying every bottom and selling every top". By comparing Net
>
> Profit
>
> > > of
> > >
> > > > your trading system with PP you can calculate the "Model
> > >
> > > Efficiency"
> > >
> > > > (ME).
> > > >
> > > > I think PP can be easily calculated as a stand-alone code by
> > >
> > > applying a,
> > >
> > > > say, 1% Zigzag. But how can it be done if I want to add ME as
> > > > an additional metric in the Custom Backtester? The Equity()
>
> function
>
> > > is
> > >
> > > > used for your trading system and cannot be used for the Zigzag
> > >
> > > system
> > >
> > > > at the same time in order to compare both, IMHO. So the only
> > >
> > > solution I
> > >
> > > > can think of is to loop through all Zigzag signals and
> > > > calculate
> > >
> > > the
> > >
> > > > profit programmatically. Or am I overlooking something?
> > > >
> > > > Pardo also suggests to calculate the Remaining Percentage of
> > >
> > > Degrees of
> > >
> > > > Freedom (through Used Dgrees of Freedom and Original Degrees of
> > > > Freedom). Any idea if and how they can be counted in AFL?
> > > >
> > > > Regards,
> > > >
> > > > Thomas
> > >
> > > ------------------------------------
> > >
> > > 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
>
> ------------------------------------
>
> 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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