|
PureBytes Links
Trading Reference Links
|
At 6:03 AM -0700 9/18/00, Alex Andreadis wrote:
>Quoting my original mail: "Even if that is the
>case [ie that commercially sold systems are
>garbage] and the only solution is to create our
>own, it's still useful to have some idea of the
>performance characteristics of the commercial
>systems as a yardstick against which to measure
>our own work."
>From Mark Jurik's website:
<http://www.jurikres.com/snake/aztecs.htm#top>
----------
There's a thought provoking advertisement in the July '93 issue of a
popular magazine for financial investors. It poses the question,
"IF YOUR HEN LAID GOLDEN EGGS,
WOULD YOU SELL IT?"
Let me rephrase the question. If you had a system that made a million
dollars in 3 years, would you be passing it out for $300? No? How
about $3,000? Still no? What would you sell for $3,000? Probably
something less spectacular.
<snip>
----------
I think this explains why people say "that commercially sold systems
are garbage". Garbage is a little strong but you will not find any
"Holy Grail" systems for sale at any affordable price.
My two favorite quotes:
"I trade the best and sell the rest."
"Any trading system can make money, ...if you sell enough of them"
As most of the old-timers on this list know, I use Sharpe Ratio as
the most reliable measure of the worth of a trading system.
I most recently posted a detailed description of this on 6/2/00. The
following is quoted from that post:
-
I find that the Sharpe Ratio is the best single measure of the worth
of a trading system or the performance of a money manager or of the
performance of a mutual fund. It is also the only valid way of
comparing the results of using a trading system vs. buy/hold. The
Morningstar web site lists the Sharpe Ratio of mutual funds but you
have to search for it.
<snip>
A Sharpe Ratio of 1.0 is considered "pretty good".
<snip>
Investing in an S&P500 index fund over the past five years
("buy/hold") had a Sharpe Ratio of about one.
<snip>
A "decent" trading system will have a Sharpe Ratio of at least 2. I
usually shoot for at least 3. My best ones are over 5 and I have seen
values as high as 10 for really great systems.
The Sharpe Ratio reported by TradeStation and by Future Truth and
several others does not seem to be calculated correctly so be careful.
I have found that many people who quote their Sharpe Ratios do not
really understand it or how to calculate it.
The Sharpe Ratio was named for Prof. William Sharpe who was one of
three people who shared the Nobel Prize in Economics in 1990 for his
contributions to what is now called "Modern Portfolio Theory". He is
now a Professor at Stanford and has a lot of interesting papers on
his web site at <http://www.stanford.edu/~wfsharpe/>.
Bob Fulks
|