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"...As an example, I've seen a number of systems that test at say 10%
annually with fixed size positions, jump to 20% with the correct money
management formula added to it..."
By moving from buy-and-hold to cash during the weakest seasonal time
of the year for stocks and re-buying at the end of that window, the
SP600, SP500 and Nasdaq Composite pick up between 8% and 10% in
average annual return (that's in addition to their LTBH return when
held year-round) when tested over the past 10 years. That's a 31.74%
average annual return, 20.79% and 22.29%, respectively. Non-
optimized, same months every year for all three indices, no complex
algorithms.
A 10%-20% annual return with a sophisticated trading system sounds
pretty good until you start to compare it with results that can be
achieved with far less complex and more reliable methods.
Luck,
Sebastian the Kill-Joy:)
--- In equismetastock@xxxxxxxxxxxxxxx, superfragalist <no_reply@xxxx>
wrote:
> Your data on the small cap market is historically sound, no
question.
> However, there are many methods of trading. Each method of trading
has
> a probablity of wins and losses. The small cap market might out
> perform the large cap market but within the small cap market
different
> systems perform at different retes and have differing degrees of
> expectation.
>
> There are maybe 10 money management--position sizing--formulas that
> are commonly used. Some are impacted by the probability of wins and
> losses, some are based on fixed shares or dollars and some are based
> on capital account risk only.
>
> Each of those methods should be tested with the entry and exit
formula
> which is going to be used on whatever market one trades.
>
> The tests should be performed like any other systems test with in
> sample and out of sample data with the only variable being the money
> management technique applied.
>
> If the system tests at say 10% annually (hypothetical) with no money
> management formulas except fixed size, the the annual performance
will
> change and sometimes dramatically when the other money management
> formulas are used in place of the traditional fixed size trade.
>
> None of the that can be determined by looking at a chart.
>
> The method used as a base for the position sizing formula I posted
> usually tests out very well, regardless of the system someone is
> using. I'm not basing that on my tests only. Other systems
developers
> have found similar results. However, since every system is
different,
> each person should run their own tests.
>
> As an example, I've seen a number of systems that test at say 10%
> annually with fixed size positions, jump to 20% with the correct
money
> management formula added to it.
>
> I wish I could simply look at a formula on a chart and conclude it's
> no good. It would save a lot of time and energy, not to mention
> frustration. Testing is hard work. However, the consequences of not
> testing are very expensive.
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