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Frank and all,
I do not see what is so wrong with upward volatility. I can see in the
extreme case that you have one trade that makes >60% of your returns
over a long time frame you may not want to trade it. But what if 10 out
of 100 trades make 90% of your return, depending on how bad the
drawdowns are, this strategy seems fine to me. Incidentally, Alex's
website is amazing and anyone interested in this topic should definitely
check it out and save themselves a lot of time and effort. Thanks Alex.
Gabriel
-----Original Message-----
From: Frank Fleisher [mailto:r4_6fpen8@xxxxxxxxxxxxx]
Sent: Wednesday, January 21, 2004 10:47 PM
To: Gray, Gabriel
Cc: omega-list@xxxxxxxxxx
Subject: Re[2]: What Constitutes Acceptable System Performance?
Hello Gabriel,
Tuesday, January 20, 2004, 7:30:42 AM, you wrote:
GG> Ross,
GG> A couple of comments/questions on all of this. I have heard that
GG> Sharp ratio is bad because it punishes upward volatility of your
GG> equity distribution. This MAR ratio sounds very interesting, but I
GG> would have a question about adjusting for changes in your account
GG> size; as the corresponding growth rate and percentage DD would all
GG> change. 2*max drawdown seems a little subjective. Just my 2 cents.
I think upward volatility is no better than downward volatility. Sharpe
tends to punish volatility once the volatility becomes unusual.
However, I would say that Sharpe is unable to calibrate its normalized
volatility of a particular equity curve to one's own "realtime trading
stomach", even though the eventual total profit is attractive.
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