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Glenda,
Something doesn't smell right here.
First, if it's really trading SP7Z all the way from the end of last year, when it was
not front month until the 2nd week of September, it's unrealistic, as the trading is
too thin is the back months to assume anything about the fills.
Second, what assumptions have been made about slippage? The average trade
result (average of wins and losses) is quite small ($160 - $170). This is the kind of
sum which is easily eaten up by slippage in the real world of trading.
Hypothetical test results like this are not really worth much. You should try to get a
certified copy of the 'trader's' actual account statements and see if he really made
this kind of money with it. Only one trade in three approximately is a winner. Could
you really sit there after 11 losers averaging $650 each, and still pull that trigger
instantly on the next one?
The profit factor is quite low. If the system has been optimized (and I bet it has!)
then you can expect a small change in future performance to have a big impact on
the bottom line. It won't take much to switch that 350k win and 250k loss ratio the
other way around.
Personally, I would look for a profit factor of at least 2, no more than 5 consecutive
losers, and at least $500 per trade average profit BEFORE SLIPPAGE. That way,
you know there is probably enough profit on the good trades to survive occasional
real bad slippage.
Bob Young
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