NexusFi: Find Your Edge


Home Menu

 





How Should I test/measure a winning strategy?


Discussion in Psychology and Money Management

Updated
      Top Posters
    1. looks_one Big Mike with 1 posts (2 thanks)
    2. looks_two MrYou with 1 posts (1 thanks)
    3. looks_3 Yakito with 1 posts (0 thanks)
    4. looks_4 Quick Summary with 1 posts (0 thanks)
      Best Posters
    1. looks_one Big Mike with 2 thanks per post
    2. looks_two Fadi with 1 thanks per post
    3. looks_3 MrYou with 1 thanks per post
    4. looks_4 Pete Schweaty with 1 thanks per post
    1. trending_up 1,587 views
    2. thumb_up 5 thanks given
    3. group 2 followers
    1. forum 5 posts
    2. attach_file 0 attachments




 
Search this Thread

How Should I test/measure a winning strategy?

  #1 (permalink)
Yakito
Buenos Aires, Argentina
 
Posts: 47 since Jun 2013
Thanks Given: 39
Thanks Received: 4

Hello,

I am starting the development of strategies for NT and different platforms but as soon as I begun I am confronted with a very basic question. What would be a 'good' strategy?

It is easy to understand which are the bad ones, but when measuring the successful ones, what should I look at?

Net Profit? Profitable Trades? What is the strategy was very bad during the fist half of the time period for which it was tested and then it started showing very good profits? Is it OK to discard any strategy when then number of profitable trades is below 50%?

Anyway, I am sure many of you might have had the same question before so any tip will be much appreciated.

Thanks

Reply With Quote

Can you help answer these questions
from other members on NexusFi?
NT7 Indicator Script Troubleshooting - Camarilla Pivots
NinjaTrader
Exit Strategy
NinjaTrader
Deepmoney LLM
Elite Quantitative GenAI/LLM
Are there any eval firms that allow you to sink to your …
Traders Hideout
Futures True Range Report
The Elite Circle
 
Best Threads (Most Thanked)
in the last 7 days on NexusFi
Get funded firms 2023/2024 - Any recommendations or word …
59 thanks
Funded Trader platforms
36 thanks
NexusFi site changelog and issues/problem reporting
25 thanks
GFIs1 1 DAX trade per day journal
19 thanks
The Program
18 thanks
  #3 (permalink)
Pete Schweaty
Baltimore MD
 
Posts: 54 since Jun 2013
Thanks Given: 12
Thanks Received: 13



Yakito View Post
Hello,

I am starting the development of strategies for NT and different platforms but as soon as I begun I am confronted with a very basic question. What would be a 'good' strategy?

It is easy to understand which are the bad ones, but when measuring the successful ones, what should I look at?

Net Profit? Profitable Trades? What is the strategy was very bad during the fist half of the time period for which it was tested and then it started showing very good profits? Is it OK to discard any strategy when then number of profitable trades is below 50%?

Anyway, I am sure many of you might have had the same question before so any tip will be much appreciated.

Thanks

It all depends on what kind of strategy it is. If you are a scalper looking for 1 or 2 ticks 30-50 times a day, then you need a very high win percentage. If you are a swing or position trader, then you can make money off of a win percentage less than 50%.

The easiest plug in formula for profit factor is (% winning trades X average winner) / (% losing trades X average Loser).

Anything less than 1 is a losing plan. You would ideally like it to be 2 or greater.

For example. A system with a 50% win ratio that gets $200 per winner and $100 per loser looks like this.

(0.50 X 200) / ( 0.50 X 100) = 100 / 50 = profit factor of 2.00

You can also track expected returns in ticks or points per trade.

That is just as easy. You take a significant sample size (the more the better, but over 30 trades for sure). Take the total number of points you have won and divide it by the total number of trades you have taken. That number represents what you can expect the system to produce per trade in the long run.

For example. If you have taken 100 trades, with the W/L ratio above, and a single contract on the ES.

you would have Won 200 points and lost 100 for a net of +100 points or +400 Ticks. Divide that by 100 (your sample size) and you would come up with an expectancy of 1 point or 4 ticks per trade.

Reply With Quote
Thanked by:
  #4 (permalink)
 
MrYou's Avatar
 MrYou 
NC, USA
 
Experience: None
Platform: None Yet
Trading: Guitar
Posts: 403 since Jun 2011
Thanks Given: 618
Thanks Received: 196

The quick and dirty answer from me is: how does the equity curve look? Is it rising over time, over multiple "market coditions", and multiple instruments? Just by looking at the curve you can get an idea of how robust the strategy is or if it may be overly curve fitted to a specific instrument or market condition.

Generally most equity curves that I would consider trading have a profit factor of ~1.5 or higher.

Reply With Quote
Thanked by:
  #5 (permalink)
 
Fadi's Avatar
 Fadi 
Luxembourg
 
Experience: Advanced
Platform: NinjaTrader
Broker: IB / Kinetick
Trading: ES, CL
Posts: 485 since Apr 2012
Thanks Given: 667
Thanks Received: 648

In my opinion, a good strategy is a strategy that returns over a period of one year a yield % higher than the indexes regardless of trading style, scalper, swinger, futures, forex, equities, etc... and regardless of time frame, expectancy, win%, average win and loss, drawdown, and so on.

Of course if you have a negative expectancy, or a large drawdown this excludes your strategy from profitable ones, but having a positive figure in itself is not either a guarantee for a good trading plan or a strategy that is worth it.
At least that's how I look at it.

The win% itself, the number of trades per year, and/or the payoff ratio (average win / average loss) aren't all that important by themselves if, combined together, they do not allow you to return more than the indexes (S&P500, nasdaq and dow).

Successful people will do what unsuccessful people won't or can't do!
Follow me on Twitter Reply With Quote
Thanked by:
  #6 (permalink)
 
Big Mike's Avatar
 Big Mike 
Manta, Ecuador
Site Administrator
Developer
Swing Trader
 
Experience: Advanced
Platform: Custom solution
Broker: IBKR
Trading: Stocks & Futures
Frequency: Every few days
Duration: Weeks
Posts: 50,398 since Jun 2009
Thanks Given: 33,173
Thanks Received: 101,537


Yakito View Post
Hello,

I am starting the development of strategies for NT and different platforms but as soon as I begun I am confronted with a very basic question. What would be a 'good' strategy?

It is easy to understand which are the bad ones, but when measuring the successful ones, what should I look at?

Net Profit? Profitable Trades? What is the strategy was very bad during the fist half of the time period for which it was tested and then it started showing very good profits? Is it OK to discard any strategy when then number of profitable trades is below 50%?

Anyway, I am sure many of you might have had the same question before so any tip will be much appreciated.

Thanks

Read this thread:



And you'll find dozens of optimizer types here:



Mike

We're here to help: just ask the community or contact our Help Desk

Quick Links: Change your Username or Register as a Vendor
Searching for trading reviews? Review this list
Lifetime Elite Membership: Sign-up for only $149 USD
Exclusive money saving offers from our Site Sponsors: Browse Offers
Report problems with the site: Using the NexusFi changelog thread
Follow me on Twitter Visit my NexusFi Trade Journal Reply With Quote
Thanked by:




Last Updated on October 7, 2013


© 2024 NexusFi™, s.a., All Rights Reserved.
Av Ricardo J. Alfaro, Century Tower, Panama City, Panama, Ph: +507 833-9432 (Panama and Intl), +1 888-312-3001 (USA and Canada)
All information is for educational use only and is not investment advice. There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
About Us - Contact Us - Site Rules, Acceptable Use, and Terms and Conditions - Privacy Policy - Downloads - Top
no new posts