Hi, I've read somewhere that optimizing (or walk-forwarding) using measures as k-ratio, RRR or max drawdown can lead to curve-fitting and is not a good strategy. Do you agree?
What do you think is the best optimizing strategy? Thanks, Louis 2008/4/13, gerryjoz <[EMAIL PROTECTED]>: > > Grant, > in your post you asked me to elaborate on why i thought the K-ratio > was a waste of space and RRR was simpler/better. What i have found is > that k-ratio is generally lower the higher the exposure for the same > or similar trading systems in back test. If you want a high k-ratio, > according to the AB calc, don't buy or sell! > Here is a contrived (curve-fit) example (run on real data) over a few > years > CAR 33% > Profit factor 7 > CAR/MDD 2.8 > Max Sys DD % 11.5% > RRR 2.15 > K-ratio .096 > exposure 49% > #trades 170 > > the K-ratio definitio in AB help is > " > K-Ratio - Detects inconsistency in returns. Should be 1.0 or more. The > higher K ratio is the more consistent return you may expect from the > system. Linear regression slope of equity line multiplied by square > root of sum of squared deviations of bar number divided by standard > error of equity line multiplied by square root of number of bars. More > information: Stocks & Commodities V14:3 (115-118): Measuring System > Performance by Lars N. Kestner > " > personally i prefer measures which are more easily comprehended. This > one isn't, even tho 40 years ago i did do maths & stats at uni. > In any case, back in May 2004 Tomasz changed the calc... > ======> > > K-ratio calculation changed. following the change made by its creator, > Mr. Lars Kestner. > > Quoting from the book "Quantitative Trading Strategies" from 2003 by > Lars Kestner: > > [ - - - ] > " The K-ratio is a unitless measure of performance that can be > compared across markets and time periods. [ - - - ] Traders should > search for strategies yielding K-ratios greater than +0.50. Together, > the Sharpe ratio and K-ratio are the most important > measures when evaluating trading strategy performance. Note: When I > created the K-ratio in 1996, I thought I had created a > robust measure to evaluate performance. In mid-2000, trader Bob Fuchs > brought a small error to my attention regarding the > scaling of the K-ratio. He was correct in his critique and I have > corrected the error in this text. Publications prior to 2002 will > show a different formula for the K-ratio. The updated formula in this > book is correct." > > Mr Lars Kestner has corrected his formula based on this critique: > K-ratio = slope / ( sterr * per ) > > slope: Linear regression slope of equity line > sterr: Standard error of slope > per: Number of periods in the performance test > > Special thanks to Jeremy Berkovits who brought that to my attention. > > <====== > There was quite a bit of discussion at the time. > I understand RRR intuitively, and when i look at the other ratios i > can see why one is higher or lower (with a bit of checking). > > Is it possible that there was a typo in the K-ratio correction? > Perhaps Mr Kestner has made another change? > I don't have his books or articles, i just gave up on the k-ratio > because i didn't think it was telling me anything useful. > > I would be interested if you or anyone else have run some examples > where K-ratio is high and exposure is high, and what are the other > backtest numbers. > > regards > Gerry > > >
