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Re: Trading System Benchmarks



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> In my opinion I have to agree with Van K. Tharp, author of
> Trade Your Way To Financial Freedom.  A great system will have
> a high score defined as expectation times opportunity factor.
> Expectation is basically the average win divided by the average
> loss.  Opportunity factor is the number of times the system lets you
> trade within a predefined time period.

There is one other critical factor:  size.

I have systems that make a fortune with straight-line equity curves 
and high W/L averages.  But they might only average $2 a trade in the 
ES or NQ.  That's useless.

You need an average trade that's high enough to cover costs, 
slippage, and the occasional mistake, data dropouts, etc.

Also, Tharp's definition doesn't mention anything about win rate.  In 
theory a low-win% system can work just as well as a high-win% system, 
but I'd want a reasonably high win %.  I don't want to trade a system 
that takes 20 small losses for every win.  Not only is it 
psychologically difficult to trade, it's too vulnerable to error.  
All it takes is one "oops" to miss that one win and ruin your results 
for a very long time.

Gary