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-----Original Message-----
From: Kevin Berg [mailto:ksberg@xxxxxxxxx]
Sent: Tuesday, January 20, 2004 11:56 AM
To: Gray, Gabriel
Subject: RE: What Constitutes Acceptable System Performance?
Ross,
You're right, of course. Any interpretation of a metric is subjective
(That's why the IMHO).
I'm basing my interpretation on personal observation across several
position trading systems. The MAR levels may differ for swing and day
trade systems. I have done some R-Multiple analysis on shorter
time-frames, and tendency I see is greater reward on position trading
systems. That leads me to believe MAR ratios would be lower on smaller
time-frames, but I'm only guessing.
Here's MAR on a few position systems ...
http://www.traderstech.net/Compare%20Systems1.htm
re: Account size change ... one thing you'll note about sizing is how
growth and draw down are inter-related. You can get a good feel of this
just by playing with sizing parameters and watching stats. No matter
what you think about Optimal-F, Ralph Vince does the right math to show
how risk and reward are two parts of the same coin. What I notice is how
MAR stays (fairly) consistent when dialing in size (I do see some minor
difference in rounding error).
To a degree, I can choose desired annual returns by dialing in size.
What I can't change is the characteristic draw-down for a given system.
Suppose I were to make all system returns equal. Now I can compare any
two systems in terms of draw-down. This is essentially what MAR does.
As for the Sharpe ratio, I know the it is widely used. Somehow for me it
doesn't capture the essence I was looking for and it is certainly harder
to translate backwards to something meaningful. I have also heard about
the bias you mention, but hadn't explored it first hand.
Kevin
--- "Gray, Gabriel" <Gabriel.Gray@xxxxxxxxxxxxxxxxx> wrote:
> Ross,
>
> A couple of comments/questions on all of this. I have heard that Sharp
> ratio is bad because it punishes upward volatility of your equity
> distribution. This MAR ratio sounds very interesting, but I would have
> a question about adjusting for changes in your account size; as the
> corresponding growth rate and percentage DD would all change. 2*max
> drawdown seems a little subjective. Just my 2 cents.
>
> Gabriel
=====
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Kevin Sven Berg To play the game
ksberg@xxxxxxxxx Get out of the bleachers
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