What is a good system ?
Author: bundasse
Creation Date: 4/10/2009 3:26 AM
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bundasse

#1
Hi

i read on internet that a good system needs to give you money (of course i would like to say !) but has to have something like 70% of win's trade...

for my part, i have almost finished my system and for the moment it multiply by 3 my starting investment in 7 months (including the fees but not the slippage) but i have only 43% of win's trade...

what i have to watch to know if my system is a good system or not ?!?

thx
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DrKoch

#2
Most Important: Consider Out-Of-Sample test results only.
Second Imortant: Its the ratio of Profit to Risk which counts. The two components alone are pretty meaningless.
Third Important: Average Profit per trade needs to be well above trading costs and expected Slippage.

Conclusion:
Look at Ratio(APR, expected Drawdown), Sharpe Ratio, Average Profit per trade.

Meaningless:
Results from data intervals you used to develop your strategy
APR alone
MaxDD alone
Percent winners
Average winning trade
and so on
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Krusnik02

#3
I think, that only trend following strategies can make long-t?rm profit. For example - S&P grows 10%, you system grows 9%. S&P falls 10% - your system falls 5%.

If the system trades patterns, than somewhere in the future this patterns will brake. For example - I had 3 strategies for EurUsd, they worked for 5 last years. But this autumn, when crisis began, markets changed and all my strategies go down and they lost all capital.

But this autumn, trend-following strategies loss less than they already made, since January.
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swuzy

#4
Nice to hear from you Dr. Koch. .... I am so very impressed by your WL creation, work, and inputs.

QUOTE:
Second Imortant: Its the ratio of Profit to Risk which counts. The two components alone are pretty meaningless.


I'm looking at a WLP 5.3 Backtest Performance report, which "profit" heading data would you use. Also, I do not see any heading of "Risk"; do you mean "Exposure" or some other heading, for calculating the "Profit to Risk ratio"?

If the appropriate measurements are not available, perhaps they should be added into the Performance report?
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Eugene

#5
Risk can mean market exposure or percentage of time in the market (the time risk) and on the other hand Drawdown, and in this case there's a number of derivative measures like MAR ratio (CAGR/DD), Calmar ratio etc.

Another interesting technique for estimating risks is projecting drawdowns (see article by Tushar Chande in July, 2001 Active Trader Magazine ): he expresses the worst-case DD as a multiple of the standard deviation of the monthly return.