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Best trading system metrics
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Best trading system metrics

  #11 (permalink)
Trading for Fun
Sunnyvale, CA
 
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Albnd View Post
Tradestation (and probably also MC) refers to this kind of smoothness by means of the PPC (Perfect Profit Correlation), defined as follows: "the correlation of the actual equity curve vs. a "perfect" curve as if the strategy was able to buy every bottom and sell every top. The genetic optimizer will target an equity curve, that closely matches a "perfect" equity curve".

Anyone having experience with this kind of parameter?

No, but this is not an appropriate metric to compare your results. How does the optimizer decide what is a bottom or a top? Which time frame will it use? Will it pick a single bottom every fifteen minutes? Every hour?

this is not the right way to approach the issue, because it will compare your results against a fictitious standard (buying and selling at exactly the "right" point in an arbitrary timeframe.) Google "curve-fitting" in reference to trading to understand the problem here.

In my opinion, a better metric is a simple one: compare your results (your net ROI) to the current deposit rates - the interest rate you get in a money market - and if you're achieving several times that amount, then you're doing well.

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  #12 (permalink)
Trading for Fun
Sunnyvale, CA
 
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Sorry about the second post... Regarding "general metrics" for the fitness of your system, the main ones would be those that quantify your periods of drawdown as a portion of your total trading capital. Tradestation gathers these statistics for you and gives you a nice report that includes your maximum intraday and trade-to-trade drawdowns, percentage of winning trades vs. percentage of losing trades, etc. These type of metrics are as close as you can get to determining the efficiency or overall viability and sustainability of your trading system.

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  #13 (permalink)
Trading for Fun
Rome, Italy
 
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Albnd's Avatar
 
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Some interesting links:

http://seykota.com/tribe/faq/2004_Oct/Oct_11/index.htm
(browse the page for Seykota's definition of Bliss Function and his own Lake Ratio)

Risk

https://futures.io/traders-hideout/24308-how-compare-drawdown-metrics.html

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  #14 (permalink)
Trading Apprentice
Lahore Pakistan
 
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No of winners may be a good metric to judge the system efficiency ...

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  #15 (permalink)
Market Wizard
Cleveland Ohio/United States
 
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Albnd View Post
This won't help anyone in looking for a more objective and verifiable parameter. It's basically like saying that this parameter does not exist at all...

I probably did not explain myself well enough, but I definitely did not mean to imply that this "best" parameter does not exist at all. That is not what I am saying at all.

I will gladly explain, if you wish. If not, that is OK too.

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  #16 (permalink)
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kevinkdog View Post
I probably did not explain myself well enough, but I definitely did not mean to imply that this "best" parameter does not exist at all. That is not what I am saying at all.

I will gladly explain, if you wish. If not, that is OK too.

Of course, please.

My point was: I simply cannot discuss a too subjective parameter. IMHO, it's useless. I'd rather interested in a "scientific" logical device that can help me to improve my trading. If I can understand which variables are involved in my trading, I can master (even psichologically) my system. This will result in a better learning curve: I can analyze the flaws in my trading, share the results and compare them with others.
Of course, this may work just from a mechanical point of view. But for me it's a must.

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  #17 (permalink)
Market Wizard
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Albnd View Post
Of course, please.

My point was: I simply cannot discuss a too subjective parameter. IMHO, it's useless. I'd rather interested in a "scientific" logical device that can help me to improve my trading. If I can understand which variables are involved in my trading, I can master (even psichologically) my system. This will result in a better learning curve: I can analyze the flaws in my trading, share the results and compare them with others.
Of course, this may work just from a mechanical point of view. But for me it's a must.


I hate subjective criteria, too. I like objective "rules." In my experience, there is no "one size fits all" fitness metric, and ultimately you'll find different metrics work best in different situations (ultimately borne out by real time performance). So, it becomes a multi-branched objective result, if you will.


My point is that the best metric depends on 1) your objectives and 2) your development process. Here's what I mean:

Let's say your primary objective is risk aversion. Net Profit/Max DD, or Max Drawdown might be very good metrics in this case. But, if your development process allows runs with a small number of trades (or even zero trades), those metrics will be useless, since the best case will be 0 trades (and therefore zero drawdown).

Let's say instead you want to maximize overall profit. Net Profit, Net Profit/Max DD, Return on Account may all be good metrics. But, if your development process allows a ton of trades, the best case will likely be a ton of trades with a low average profit per trade (like a scalping strat). However, if you are off a bit in your slippage estimate during development, you will likely be in big trouble. So a good fitness metric might still lead to real time disaster, where another metric (not as sensitive to number of trades) might not.

Finally, if you were creating a strategy with aggressive position sizing, as opposed to one with no position sizing, your fitness criteria almost has to be different.


Certainly, posts in this thread have given you many very good metrics, which all have their place and time for use.

My point, which hopefully I've made more clear, is that no metric will be best in all situations.

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  #18 (permalink)
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For those running NT, there is a big collection of custom fitness optimizers here:

https://futures.io/elite-automated-ninjatrader-trading/25792-ninjatrader-optimizer-types-custom-fitness.html

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  #19 (permalink)
Trading for Fun
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kevinkdog View Post
My point, which hopefully I've made more clear, is that no metric will be best in all situations.

Absolutely. Thanks.

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