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What are the characteristics that make a BOT a good BOT ?
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What are the characteristics that make a BOT a good BOT ?

  #11 (permalink)
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shodson View Post
Part of "smootheness" depends on what type of trading software you are using. For example, Ninjatrader shows equity curves based on time, and not NAV, but cash balance. So while you may be holding a losing position if it eventually turns into a winner you see nothing but straight-up equity curves even though some of those trades may have been difficult to hold.

Other systems like Tradestation can show equity curves based on # of trades, so while there may be lots of time between trades, you are just looking at each individual trade result irregardless of time.

Thanks for pointing that out. I used my own excel spreadsheets and fxspyder which both work on NAV and not cash. TradingBlox uses NAV and I modeled my work on that.

I made the mistaken assumption that every platform would be similar to the ones I used.

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  #12 (permalink)
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shodson View Post
Part of "smootheness" depends on what type of trading software you are using. For example, Ninjatrader shows equity curves based on time, and not NAV, but cash balance. So while you may be holding a losing position if it eventually turns into a winner you see nothing but straight-up equity curves even though some of those trades may have been difficult to hold.

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Other systems like Tradestation can show equity curves based on # of trades, so while there may be lots of time between trades, you are just looking at each individual trade result irregardless of time.

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Interesting. I had never thought of this but it makes perfect sense. A good way to plot an equity curve then would possibly just be to plot your balance every day/period,...regardless of whether you're in any trades at that point.

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  #13 (permalink)
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DarkPoolTrading View Post
Interesting. I had never thought of this but it makes perfect sense. A good way to plot an equity curve then would possibly just be to plot your balance every day/period,...regardless of whether you're in any trades at that point.

I think the way Ninjatrader plots equity curves is fine for day trading because your account is cash settled every day, but for swing or position trading it's not as effective.

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  #14 (permalink)
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One way to test the smoothness of the equity curve is divide your ending equity by the standard deviation of your equity, calculated using a bar-by-bar array of equity values.

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  #15 (permalink)
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I'm content with good old sharpe ratios. By smoothness of equity curve you mean a low standard dev of returns and that is half the equation.
The big thing though to a sharpe ratio is you can compare your strategy against the sharpe ratio of buy and hold or short and hold the index or whatever data you are looking at over the same time period to see if you really have anything. I think many of times people find strategies in backtesting that look great only because the data being looked at already has a nice sharpe ratio and the trading strategy is just taking a piece of that by jumping in and out.

If you are better off just holding and not trading, the strategy is worthless even though the equity curve could look fantastic.

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  #16 (permalink)
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Darthtrader4beta View Post
I'm content with good old sharpe ratios. By smoothness of equity curve you mean a low standard dev of returns and that is half the equation.
The big thing though to a sharpe ratio is you can compare your strategy against the sharpe ratio of buy and hold or short and hold the index or whatever data you are looking at over the same time period to see if you really have anything. I think many of times people find strategies in backtesting that look great only because the data being looked at already has a nice sharpe ratio and the trading strategy is just taking a piece of that by jumping in and out.

If you are better off just holding and not trading, the strategy is worthless even though the equity curve could look fantastic.

Im not a fan of sharpe and am surprised that it is so widely used. It penalizes upside volatility,...so it penalizes big wins. A system that keeps drawdowns small but allows for big wins will get penalized by sharpe.

There are better (imo) metrics available that don't do this.

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  #17 (permalink)
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DarkPoolTrading View Post
There are better (imo) metrics available that don't do this.

Could you point me to one or two? I had thought the same thing when I read the sharpe specs and how it's gamed sometimes.

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  #18 (permalink)
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GregLGTP View Post
Could you point me to one or two? I had thought the same thing when I read the sharpe specs and how it's gamed sometimes.

First that comes to mind is Sortino Ratio that was devised as a way to resolve the issue of penalizing upward volatility.
For more info on the issue check here:
Sortino ratio: A better measure of risk | Futures Magazine

There are many more ways of measurement, start with a search for "trading performance measure" to find some more.

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  #19 (permalink)
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Thank you


gregid View Post
First that comes to mind is Sortino Ratio

Thank you.

WRT the Sortino Ratio, what would be an appropriate Target Return value? How would one calculate an appropriate Target Return value for a Futures contract of some type?

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  #20 (permalink)
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GregLGTP View Post
Could you point me to one or two? I had thought the same thing when I read the sharpe specs and how it's gamed sometimes.

As gregid pointed out, I would certainly say the Sortino ratio is better than sharpe. Another one I like to look at is the Ulcer Index.

Others that I don't really look at much but are worth investigating would be the Sterling ratio and Calmar ratio.

However for me I mostly prefer both the Sortino ratio and Ulcer index.

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