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At 9:58 AM -0700 7/7/99, ROBERT ROESKE wrote:
>Here is another derivation of the System Equity Indicator for
>evaluating and tracking performance of a TS4 system.
>
>It is simply the ratio of closed equity to buy and hold. Below it
>is the open,closed,bnh indicator from yesterday. The OEYGP chart is
>what could have been achieved buying an at the money call on the
>last buy signal and exiting on the last sell signal.
Comparing the equity curve of a trading system with buy/hold would
not seem very meaningful to me without also comparing the variability
of the returns (as something like the Sharpe Ratio does).
Returns can be made arbitrarily large or small by using varying
degrees of leverage so returns alone are not a good measure of the
worth of a trading strategy.
For example, a futures trading system with a 10% return and a 5%
standard deviation of returns is much better than a system with a 30%
return and a 30% standard deviation of returns. The former system can
easily be leveraged to provide (about) a 60% return with the same 30%
standard deviation as the latter system.
Bob Fulks
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