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Best trading system metrics
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Best trading system metrics

  #1 (permalink)
Trading for Fun
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Best trading system metrics

What's the best metrics (formula, parameter etc.) to probe the fitness of your trading system?

Most traders mention Sharpe Ratio, RINA index, Van Tharp's expectation, PPC, or some more complex formula like Net/Max Drawdown.

What do you think?

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  #3 (permalink)
Market Wizard
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Albnd View Post
What's the best metrics (formula, parameter etc.) to probe the fitness of your trading system?

Most traders mention Sharpe Ratio, RINA index, Van Tharp's expectation, PPC, or some more complex formula like Net/Max Drawdown.

What do you think?

You won't like this answer, but the "best" one is probably different for everyone, based on their likes, dislikes, goals and objectives.

For any metric, there are probably a dozen reasons why it is the best, and a dozen reasons why it is NOT the best.

Ultimately, the best metric for you is one that you use to successfully create profitable real time systems. So, you might have to try a few, and wait until the results come in.


Example: For me, I find optimizing for Net Profit works well. Talk to 100 traders, and I bet 95 would say that is crazy. But, for the way I do things, it works (high net profit usually means lower drawdown, and higher number of trades for statistical significance). I know if I use NP for optimizing, and NP/DD later on for evaluation, that translates well into real time performance.


Good Luck!

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  #4 (permalink)
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Albnd View Post
What's the best metrics (formula, parameter etc.) to probe the fitness of your trading system?

Most traders mention Sharpe Ratio, RINA index, Van Tharp's expectation, PPC, or some more complex formula like Net/Max Drawdown.

What do you think?

Ideally, I would use the smoothness of the system's equity curve but this is difficult to implement using my platform of choice, NinjaTrader.

I find the next best thing to be the SQN (Van Tharp's System Quality Number) which generally gives higher fitness to results that happen to have decent equity curves (probably because it factors in a system's variance).

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Personally I like closed profit / max drawdown on a per-trade and time basis. If this number is higher, it means I'm consistently making more than I risk losing. For example, if I make $500 in a day and my max high-to-low drawdown (including OPEN loss, not closed only) was $100, then I did much better than if I made $600 but had a drawdown of $500. It is risk-adjusted and pretty straightforward.

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  #6 (permalink)
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josh View Post
Personally I like closed profit / max drawdown on a per-trade and time basis. If this number is higher, it means I'm consistently making more than I risk losing. For example, if I make $500 in a day and my max high-to-low drawdown (including OPEN loss, not closed only) was $100, then I did much better than if I made $600 but had a drawdown of $500. It is risk-adjusted and pretty straightforward.

However, it doesn't tell you how efficient your exit is. Why not incorporate MFE since you are also looking at MAE.

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  #7 (permalink)
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Big Mike View Post
However, it doesn't tell you how efficient your exit is. Why not incorporate MFE since you are also looking at MAE.

Mike

Good point -- I actually do track this and my column is titled "efficiency" -- but I do not have an "at a glance" view for this on my primary dashboard, perhaps I will incorporate it. One of the things I dislike about this is that it must be manually entered (which is fine, just a little more inconvenient), as I must use discretion and determine the actual "best exit," not what the software determines the max runup was for the trade.

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  #8 (permalink)
Trading for Fun
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HitTheCity View Post
Ideally, I would use the smoothness of the system's equity curve but this is difficult to implement using my platform of choice, NinjaTrader.

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?

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  #9 (permalink)
Trading for Fun
Rome, Italy
 
Futures Experience: Advanced
Platform: TradeStation, TWS (IB), MT4
Broker/Data: Tradestation, IB
Favorite Futures: Futures (QM, CL, ES, grains), Stocks, Forex
 
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Posts: 62 since Feb 2012
Thanks: 27 given, 26 received


kevinkdog View Post
You won't like this answer, but the "best" one is probably different for everyone, based on their likes, dislikes, goals and objectives. [...]

Ultimately, the best metric for you is one that you use to successfully create profitable real time systems.

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...

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  #10 (permalink)
Trading for Fun
Rome, Italy
 
Futures Experience: Advanced
Platform: TradeStation, TWS (IB), MT4
Broker/Data: Tradestation, IB
Favorite Futures: Futures (QM, CL, ES, grains), Stocks, Forex
 
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Posts: 62 since Feb 2012
Thanks: 27 given, 26 received


Some other metrics available with TS platform:

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).



(P.S. I'm not involved in TS business - I'm just interested in the maths they make available with any strategy performance report)

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