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Re: Criteria for determining a "good" trading system


  • To: John Hayden <jhayden@xxxxxxx>
  • Subject: Re: Criteria for determining a "good" trading system
  • From: Rich Schaaf <rschaaf@xxxxxxxxxxxx>
  • Date: Wed, 27 Mar 2002 19:31:11 -0800

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Hi John,

I thought your criteria / analysis was excellent!

Given what you posted, I suspect you may already be familiar with his
work.  If not, I recommend to you Tushar Chande's book "Beyond Technical
Analysis: How to Develop and Implement a Winning Trading System" (2nd
edition).

Chande goes through analysis similar to yours. To give you a taste of
it, Chande proposes the following as a benchmark or checklist for a
"good" mechanical trading program.  Chande asserts that the following
numbers are typical of the long-term performance of professional money
managers.

Total Entry Conditions / Parameters       <= 10
Total Exit Conditions / Parameters        <= 10
Number of markets traded                  >= 10
Test period/data                          >= 24 months
Equity risked per trade                   <= 2%
Proportion of profitable trades           <= 50%
Average monthly return                    1%
Standard deviation of monthly returns     5%
Return Efficiency                         >= 0.2%
Expected depth of drawdown                20%
Expected duration of drawdown             <= 9 months
Proportion of profitable months           <= 65%
Expected Return                           > 13%

Cheers,
Rich