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At 4:18 PM -0700 9/18/00, Bill Wynne wrote:
>I agree that it is very difficult to find a good commercial trading system, but if someone can't write a system for themselves with a sharpe ratio of "at least 3," and someone else is throwing away systems between 3 and 5, isn't it a win / win situation to "trade the best and sell the rest?" Assuming honest disclosure, and reasonable value, of course.
>
>Just a thought,
It would be great if you could buy a system with Sharpe Ratio between
3 and 5 but I have not seen any.
"Aberration" is a pretty well known system. When I tested it on 13 years of
daily data, the best performance was on JY (Yen) with a Sharpe Ratio
of 0.94. Next best was CL (Crude Oil) at 0.80, then CT (Cotton) at
0.70. On most commodities performance was much poorer than that, but
usually profitable. By trading an optimized basket of 15 commodities
I was able to get the portfolio Sharpe Ratio up to 2.2 but this
requires a lot of trading effort and may be too much curve fitting
(in terms of portfolio selection).
Chuck LeBeau sells a lot of pretty good trading systems at very
reasonable prices. The ones I have tested have a Sharpe Ratio of
around 1 over ten or more years (good markets and bad). Perhaps he
has more complete Sharpe Ratio data on all of his systems. (He
provides very complete performance data.)
MorningStar, the company known for their mutual fund ratings, says a
Sharpe Ratio of 1 is "pretty good". MorningStar lists the Sharpe
Ratio of the Vanguard 500 Index fund as 0.87. (A trading system
should probably do well in both up and down markets whereas buy/hold
of a mutual fund obviously does well only in up markets, such as what
we have had up until recently.)
So you can conclude that a system with a Sharpe Ratio of 1.0 is not
bad compared with most buy/hold investments. (But buy/hold takes very
little effort whereas running a trading system can take a lot of
time.)
And systems with Sharpe Ratios of "between 3 and 5" are not being
"thrown away" or even sold.
Bob Fulks
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