Hello Howard,
many thanks for your thorough explanation!!!
Searching high and low the internet more often than not just adds to already
exiting confusion... Thus, I´m really grateful for your summary!
Monte Carlo has been a kind of a black box thing
for me and still somewhat is.
I infer from your post that Mersenne Twister is the
"best" algorithm to date, so the AB community can be -once again!- glad to have
Amibroker at its disposal>G<?
When reading your answer to Joseph (today), I
wondered what the difference between intelligent optimizer´s "sensitivity
analysis" and a MC simulator´s test might be. Both aim at testing for robustness
as far as I understand.
I´m currently in the process of evaluating IO for
my needs but I have never yet run a MC to test for robustness. So, I don´t now
what it looks like.
I don´t want to take away to much of your time and
expect another detailed answer but
1./ could you just shortly elaborate on the
difference between a sensitivity analysis, done by IO, and a test for robustness
(i.e. sensitivity?) done thru a MC simulator? I understood there is currently no
better choice than the combo of AB with Mersenne Twister at this
point.
2. Incidentally, I wonder what "modules" one would
need to have at hand or write himself (plugins for Amibroker?) to be able to run
all the different tests "Know your system software" is able to produce
(Amibroker plus Mersenne Twister, ...?). I´m asking since you said to be
familiar with IITM stuff. If my questions are to far off-topic and might bore
other forum members, just email me privately.
And I am glad for your comments on Van Tharp´s
work. Sometimes, he seems to shoot "off the hip", if you know what I mean..
I certainly will look up your posts regarding this subject - thanks for
mentioning. I like to verify both sides of the "coin".
I really appreciate your effort to help us newbies
out there to broaden our horizins. Forums like this are a great place to
be!
Thanks again and all the best for your newest
book project!
Peace
Markus
----- Original Message -----
Sent: Sunday, January 24, 2010 7:33
PM
Subject: Re: [amibroker] Monte Carlo
Analysis in AMIBROKER?
Hi Markus --
I also own Tharp's books. He does use a
proprietary package called "Know Your System" for his analysis.
There
are many ways to use Monte Carlo techniques. The different algorithms
are more about generating random numbers and defining the distributions from
which the random values are drawn and the way they are used.
Tomasz has implemented the Mersenne Twister algorithm in
AmiBroker. Mersenne twister is much better (higher in metrics that
describe randomness, such as having a long period and not having patterns
within the series) than the random number generators that come with C++,
Excel, etc. If you use Excel for Monte Carlo analysis, be sure to get a
Mersenne Twister Excel addin before you start. Here is one source: http://www.financial-risk-manager.com/risks/analytics/random/rand.html#mt19937.
There are others.
The distributions can be very problem specific, but
all start out using "uniform" distributions and build from there to "normal",
and so forth.
Back to Tharp. I have some criticisms of Tharp's
"Definitive Guide to Position Sizing". There are two in
particular.
1. He arbitrarily and inappropriately sets an upper
limit on the number of data points to be used in calculating his System
Quality Number. (His SQN is essentially a t statistic, which he
acknowledges in one sentence early in the book, but ignores from then
on.)
2. He is completely unrealistic about what level of SQN trading
system developers should be able to achieve. As a quick and dirty
measure, a t statistic of about 2.0 suggests significance at about the 0.05
level for N of about 20 data points. A trading system that uses
expectancy as its metric, computes the t statistic on actual trades or truly
out-of-sample results (in-sample results have no value as estimators of future
profitability), and has a t statistic of 2.5 to 3.0 will result in
extraordinary profitability. Tharp talks about achieving scores of 6 or
7. Give any one of us a system that has a score of 6 and we can buy
Manhattan in about a year starting from $10,000.
So,
read Tharp. His books do have value. But be aware that there are
many aspects of trading system development, testing, and validation that he
simply does not understand -- and some of his writing are seriously
misleading. I have made many posts on Aussie Stock Forums (http://www.aussiestockforums.com/)
on this topic, and also on trading system development. Search using my
name.
I have corresponded with Van Tharp about some of these
issues and he acknowledges my points. He even gives me credit in
DGPS. One of the attendees of my workshops in Australia a few months ago
is a personal friend of Vans and agrees with my
assessment.
Thanks,
Howard
On Sun, Jan 24, 2010 at 10:42 AM, Markus Witzler <funnybiz@xxxxde> wrote:
Hello Howard,
just stepping in here since MC analysis may be
an issue keeping me busy in near future (though I haven´t yet developed much
expertise in it).
Are there different algorithms of MC
simulators?
I wonder what to look for when considerung a
product, since different "qualities" in algorithms may turn out different
levels of "quality" (i.e. what scenarios to expect in the
future).
Van Tharp for instance claimes to have Chris
Anderson developed a software package called "Know your system" with an MC
simulator in it - he uses it for studies for his book on money mangement
which I own.
I´m looking forward to buying your book since
MC is covered there to as you said below...
Thanks
Markus
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