- ago
Hello,

So there are a ton of different analyses available in WL regarding the backtest of a strategy. I am curious what people prefer to look at when evaluating their strategies. Do you look at profit factor, WL score, Sharpe Ratio, Sortino Ratio, or something else?

I have found myself drawn to the Recovery Factor of a WFO. I feel that this can tell me the risk adjusted return of the strategy I might experience in live trading. However, it almost feels too simple.

So what is your favorite backtest result to look at?

Thanks,
Dandude
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- ago
#1
This is an excellent question. And I do have one production buy-high strategy that optimizes against Recovery Factor with pretty good results.

But the one metric I look for is the recent slope of the equity curve (say for the last 3 to 5 trades). It needs to be positive so you know your strategy is making money over time; otherwise, what's the point?

Moreover, if the equity curve has a recent negative slope, I remove that symbol from the "active" datasets. (I wouldn't throw the symbol away totally because it might have a rebirth someday.)

WL8 does have a ScoreCard metric that looks at the slope of the equity curve using a simple (i.e. first-degree) linear regression, but it fits the entire equity curve, not just the most recent years. You could reduce the Data Range to 3 years, then run that equity-curve slope metric though. Be sure you get at least 3 to 5 trades into the equity curve slope calculation; less than that is meaningless.
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- ago
#2
Thanks for that, but what is that WL metric called which you are referring to?

WLScore?
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Glitch8
 ( 13.30% )
- ago
#3
It's called "Slope of Equity Curve" in the Metrics Report.
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- ago
#4
Let me add, one shouldn't exclusively rely on ScoreCard metrics. I typically step through poorly behaving symbols eyeballing each of their equity curves without employing a ScoreCard metric. That's a good way to get the feel about how a symbol is performing.

However, if you are really sold on using ScoreCard metrics for measuring performance, then you should vote for the feature request https://www.wealth-lab.com/Discussion/Symbol-Rankings-tool-9116 so you can have a listing of symbols and how they rank with each ScoreCard metric individually.
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- ago
#5
If I'm backtesting a new strategy (vs. live trading) to compare various alternative datasets or parameters, or reviewing the results of an optimizer run, I like to start with the Wealth-Lab score. It's a thoughtfully designed metric that takes a stab at comparative risk / reward with a single weighted score of the most common high-level objectives for a strategy: APR (higher is better), drawdown % (lower is better), and exposure (lower is better). It's a good starting point although I usually drill down to compare additional metrics such as recovery factor (higher is better), which correlates with the TTR calculation (lower is better) that @superticker mentioned in Post #4.

Of course, high APR is desirable, but you might have your own limit for how much drawdown you want to risk and choose a strategy with less drawdown and lower APR and WL scores based on your risk profile. You might also choose to sacrifice a higher WL score for more exposure and a higher APR.
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