> Hope that gives you something stimulating to think about. Dude, I'm totally overstimulated! Do you have a formula for PowerFactor? BTW where did you end up settling in Australia? GRANT
brian_z111 wrote: > Grant, > > Apologies for late comments (I've been to the beach but mentally > flagged your question before I left). > > You might be interested in my generic opinion. > > My trumpeting on expectancy, ProfitFactor and PowerFactor are based > on my efforts to identify and understand the root causes of equity > curve growth and variance (underneath it all is there anything else > that really concerns us). > > It is rather like the difference between the average driver and a > professional driver. Average drivers, on their annual holidays, are > typically concerned about MPH, hours to arrival and fuel costs > whereas a professional driver (F1 racer) is a 'power user; concerned > about performance drivers e.g. engine power (HP or watts), oil > pressure, fuel efficiency, road conditions etc, oil temperature. > > My personal approach is to focus my enquiry on the 'power' factors of > trading performance. > > Hence the topic of my discussion with Gerry, who made some > interesting observations on PowerFactor and the key metrics that are > associated with it. > > In Excel simulations of no win (breakeven) fair coin tosses, that I > have performed in the past, I was astounded at the range of possible > equity outcomes (no two equity curves are the same and they form a > cone that fans out on either side of the breakeven line and that > continues to expand with time OR N tosses of the coin). > > This is what Ralph Vince was referring to when he said "that is just > how perverse the equity curve of a fair coin is". > > He also gives the 1st and 2nd arcsine laws that predict the amount of > time we can expect the equity curve to stay on one side of the b/e > line and the max/min of the equity curve. > > Ralp Vince "The Mathematics of Money Management". > > The equity curve outcomes that I achieved in my 'push the excel buton > and see' trials were very similar to the simulated equity curves in > Howards QTS book - page 309. > > My argument is: > > - we can only trade successfully with an edge > - the edge is based on the 'predictable behaviour' of a market event > e.g. chart pattern' > - a predicatable pattern will exhibit the properties of a coin toss > (albeit a biased coin) > - the equity outcomes of a biased coin toss are varied > > therefore any evaluation method that doesn't reference variance is > unlikely to be useful to me. > > That is why I have an interest in Binomial Simulation and metrics > like ProfitFactor and PowerFactor (they are close to the inputs of a > Binomial Simulator - which is alternative approach to MCS and it > doesn't rely on a rescrambling of the sample set. > > So, based on my chosen approach I see no point in considering the > metrics of one equity curve - if you go OOS OR toss the coin again > you will get an entirely different equity outcome. > > That is why I am more interested in what causes equity lines to grow > (increases the geometric mean) and controls equity curve drawdown (so > I can put the setting where I want it). > > K-ration is a measure of equity curve smoothness whereas > RiskRewardRatio is a 'root cause' metric. > > There are a lot of different opinions about what constitutes reward > and risk but if you are talking about RR as defined in Markowitz's > Modern Portfolio Theory then it is something I don't have a great > deal of understanding on but I definitely regard drawdown as 'the > risk', probability as teh drive and variance as a quantity not to be > ignored. > > BTW my efforts with BS are complementary to Ralph Vinces work > (possibly it will make a little corner of his work more accessable to > the maths layperson). IMO RV's work is brilliant. He is the analyst > who 'blew me out of the water'. > > Hope that gives you something stimulating to think about. > > brian_z > > --- In [email protected], Grant Noble <[EMAIL PROTECTED]> wrote: >>> The K-ratio isn't worth the space it takes up: RRR is simpler. >> care to elaborate? >> >> gerryjoz wrote: >>> In an earlier post, expectancy was associated with profit factor. >>> It is more closely related to payoff ratio. >>> In Van Tharp's book, 2nd edition, "Trade your way...", page 204 et >>> seq, he calculates >>> Expectancy = average profit/ # trades >>> divided by average loss. >>> Payoff ratio is average profit/average loss, >>> so >>> Expectancy = payoff ratio/# trades. >>> --which can give very low numbers, and makes the concept rather >>> dubious if you are using it as an absolute value for comparing > systems >>> with different numbers of trades. It might be better to use > trades per >>> annum. >>> To be fair Van Tharp only gives that way of calculating > expectancy as >>> a default if the risk of a trade isn't able to be calculated > taking >>> into account a pre-determined proportion of equity. For that, you > need >>> to read the whole chapter. >>> Personally i find CAR/MDD, RRR more relevant, along with the raw >>> Payoff ratio. >>> >>> The K-ratio isn't worth the space it takes up: RRR is simpler. >>> >>> regards >>> Gerry >>> >>> >>> >>> >>> >>> ------------------------------------ >>> >>> Please note that this group is for discussion between users only. >>> >>> To get support from AmiBroker please send an e-mail directly to >>> SUPPORT {at} amibroker.com >>> >>> For NEW RELEASE ANNOUNCEMENTS and other news always check DEVLOG: >>> http://www.amibroker.com/devlog/ >>> >>> For other support material please check also: >>> http://www.amibroker.com/support.html >>> Yahoo! Groups Links >>> >>> >>> >>> > > > > ------------------------------------ > > Please note that this group is for discussion between users only. > > To get support from AmiBroker please send an e-mail directly to > SUPPORT {at} amibroker.com > > For NEW RELEASE ANNOUNCEMENTS and other news always check DEVLOG: > http://www.amibroker.com/devlog/ > > For other support material please check also: > http://www.amibroker.com/support.html > Yahoo! Groups Links > > > >
