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My understanding about effectiveness of the statistics used to describe
trading systems' performance boils down to 2 numbers: average win/loss ratio
and % of winners. These are the numbers that are capable of describing a
system's performance over various timeframes and markets in a relatively
constant manner. The rest of the numbers like max drawdown, net profit/loss
etc. are rather probabilistic and limited in nature, meaning that they
either apply to one single timeframe/market, or to some system-adverse time
periods.
Based on this, I took the numbers from the recent article in Futures
Magazine about top 10 trading systems (thanks Mr. Simms), put them into an
Excel spreadsheet, and charted all the systems based on the above 2 numbers
(attached, the green line is the breakeven borderline). Talking about the
"Holy Grail" trading systems, most of the systems based on these numbers
clearly do not qualify into this category. Moreover, even the systems that
look really good obviously performed so well only due to some very nice
bull-markets.
Now, do these "Holy Grail" systems actually exist in reality? And what is a
"Holy Grail" system? 70% winners with avg win/loss ratio of 3-4? Is this
possible as a rule for a system, not just a temporary exception? (Anyone
wants to share their "Holy Grail" experience?) Or is the whole game in
having a slight edge over completely random results, and then applying a
sound position sizing / risk management strategy?
Ivo
PS If anyone wants the spreadsheet just let me know.
Attachment:
Description: "FMTop10.gif"
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