Re: Equity Curve Analysis

[Bob Fulks <bfulks@xxxxxxxxxxxx>]

At 10:33 AM -0800 1/3/02, Craig wrote:

>Test based on trading two markets simultaneously.  Trader is always in the market, and 100% invested.  Total capital = $100,000, buying and selling $50,000 for each market.  Non-cumulative (No profits are re-invested.)  Commissions are subtracted from equity curve.
>
>I would appreciate any comments about this equity curve.  What is wrong with it, or what is lacking in terms of a measurement or ranking value.

Try calculating the Sharpe Ratio in Excel:

  monthly_profit_% = monthly_profit / $100,000);  [Looks like about 20%]

  average_monthly_profit_% = AVERAGE(monthly_profit_% (over all months);

  a_excess_return = 12 * average_monthly_profit_% - 5%;

  a_standard_deviation = SQRT(12) * STDEV (monthly_profit_% (over all months);

  Sharpe = a_excess_return / a_standard_deviation;

A Sharpe Ratio over 1 is "OK". A Sharpe Ratio over 3 is great.

Bob Fulks