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Peter-
My opinion is: it depends. The idea the ratio gets across is that if you have
a system that doesn't return a lot, but doesn't risk a lot (without leverage),
you can just leverage up to earn higher returns (at a cost of equally higher
risk).
Example: Over the last 11 years System A returns 20% a year, but the max
drawdown is 20%. Ratio = 1.0 (better than the market)
System B returns 15% a year, but the max dd is only 10%. Ratio
= 1.50. Which is better?
All other things being equal, System B is the better system. It may not make
as much, but you could just use 2-to-1 leverage to get roughly 28% (30%- margin
costs) return while your max dd will increase to 20%, which is the same as
System A. B would then give you higher return for the same risk.
There isn't any ONE best measure to compare systems. I also look at BETA,
Sharpe, Ulcer Index, rolling periods analysis to name a few. Hope this helps.
Bill Bancroft
Peter Ryan wrote:
> Is profit factor (gross profit / gross loss) the best measure to compare
> systems ?
>
> I have tested several systems and often the number of trades differs
> dramatically with different parameter sets.
> This can have a huge affect of the net profit of different combinations,
> and seems to make straight profit meaningless as a comparison measure.
>
> I notice that some journals do not even list profit factor as part of their
> results.
>
> Is this something wrong with profit factor ?
>
> All comments appreciated.
>
> (I use tradestation)
>
> Thanks
> Peter
>
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