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Hi Zozu --
I must disagree with Van Tharp on this.
If the runs are truly out-of-sample, then each and every one contributes to the computation. It makes no sense to limit the count to 100. It is poor procedure to limit the count. It is bad science to limit the count. Do not limit the count.
If the runs are in-sample, then the test has no meaning anyway. Computing the t-test statistic using any N will be misleading. Do not even do the computation. If a decision to trade a system is made after computing the t-test statistic on trades that came solely from in-sample results, there is an extremely high probability that a Type I error will be committed. That is, the trader will believe that his system is better than random, when it is in fact not better than random. Type I errors result in loss of money.
Thanks,
Howard
On Tue, Oct 13, 2009 at 10:54 AM, zozuzoza <zozuka@xxxxxxxxx> wrote:
Hi Howard,
Limiting the number of N doesn't mean that you are not using all trades for the calculation of SQN. Only the sqrt(N) part of the formula is limited in order not to distort the results if there are many trades. It makes sense.
The other part of the formula does count on all the trades.
Zozu
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