"I've read somewhere" - well the world (and Internet specifically) is full of misinformation. You really need to read Howard's book. Regular optimization is NOT the same as walk forward. Walk Forward process actually prevents/minimises curve fitting.
Best regards, Tomasz Janeczko amibroker.com ----- Original Message ----- From: Louis Préfontaine To: [email protected] Sent: Wednesday, April 16, 2008 5:39 PM Subject: Re: [amibroker] Re: Expectancy - and related--specifically K-rato 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
