[Date Prev][Date Next][Thread Prev][Thread Next][Date Index][Thread Index]

RE: A question about system design.



PureBytes Links

Trading Reference Links

You sample the mark-to-market value of your account periodically - monthly, weekly, daily, etc., and use those values in the calculation. It is not related to how often you trade, just to the value of the account at the end of each sample period. The example was for monthly samples but you can sample at any interval you want.

The Sharpe Ratio will be approximately the same no matter how often you sample. (It will be exactly the same if the distribution of returns is "normal" [Gaussian] and this is a good enough approximation for real returns for most trading systems.)

And the example assumed no compounding. If you allow compounding, increasing your trade size as your account grows, the calculation would be a bit more complex.

Bob Fulks


At 6:48 PM +0200 7/16/00, Bengtsson, Mats wrote:

>Sounds like a good measure, but it seems it is a bit sensitive in a heavily
>traded system. Say for example that the system is doing trades of between 3
>to 30 days length. A good profit after a couple of days would then mean an
>extremely high percentage return, and so would a stop loss also mean an
>extremely bad percentage return.
>
>Using these trade results to calculate mean deviation would give a very
>different result from using the accumulated net return per month (assuming
>enough trades from the system). Would it not? Reason I ask is that I like
>the idea, but I would like to find a measure based on real trade data rather
>than some montly average compared to a yearly average.