> As long as you get where you want to go. > > A fourth opinion FWIW: > > PP is a specific term used by Pardo. > He doesn't define it precisely, or give a method (he just says buy > the bottom and sell the top).
I agree that he's not very precise. > > I have used the sum of the absolute value of the daily ROC to > calculate PerfectEquity (PP) for daily bars, on the close (I have > used it to calculate a Straight Line Ratio or SLR which is a measure > of absolute PP for EOD traders). Good idea - why didn't I think of it? Better yet (allowing both long and short positions): PP=Cum(Max(abs(H-Ref(L,-1)),abs(L-Ref(H,-1)))); You have to deduct commissions, of course. Regards, Thomas > > ZigZag will give you a smoothed variant of PP (if we allow ourselves > free rein with Pardo's idea). > > Howard uses ZZ, in his book, specifically for stock selection based > on cycle analysis. > > He does say that "issues with regular price patterns lend themselves > to profitable quantitative analysis" but he leaves the trading > solutions up to us. > > If you use ZZ in model efficiency analysis you are measuring your > systems efficiency in synchronizing to the cycle/patterns for that > dataset and that test period (if it wasn't synchronized then it > wouldn't return a good ME - 100% ME would be a set of rules that > perfectly models the ZZ cycles). > > Same for all ME's irrespective of the definition of the PP. > > It could be an interesting approach - I don't know I haven't tried it > so far. To me it is a 'pursuit of the Holy Grail' approach. > My bias is to be a street fighter and just take whatever I can get > until something better comes along (I have the trading loyalty of an > alleycat!). > > Howard's method/code can be adapted to give you one answer (if you > were always in the trade, with a reversal signal, then eq will give > you the abs sum of the zigs and the zags). > > Otherwise you have to calc by defining the PivotPoint (as Howard > does) and then summing the absolute difference between the value > (when) of the current and previous pivot (at least that is one way I > have done it in the past). > > If you just want to trade one way e.g. bullish, Howard's example > contains your answer. > > brian_z > > --- In [email protected], Thomas Ludwig <[EMAIL PROTECTED]> > > wrote: > > Brian, > > > > thanks for your answer. > > > > > Calculating PP is made a little more interesting if we > > define 'top' > > > > as the bar high and 'bottom' as the bar low, for every pivot > > point. > > > > However, for simplicity we can assume we are only talking about > > the > > > > close (line chart and not a bar chart). > > > PP is definitely not available from zigzag - forget it - it may > > well > > > > be useful info but we can't call it PP (Howards uses it in his > > book - > > > > he uses it in a slightly different way which is valid but it is > > not > > > > PP as defined by Pardo and others). > > > > I'm not sure why you think that PP is not available from zigzag. > > While > > > there might be more complicated methods to calculate PP (depending > > on > > > your definition), zigzag is a good approximation in my opinion. And > > I > > > need a handy formula since I want to add it as one additional > > metric to > > > my WF IS and OOS equity curves. > > > > Regards, > > > > Thomas > > > > > Note: How you calculate PP depends on your definition of a Pivot. > > > > > > IMO PP is a rather complicated way to go about it. > > > I am not certain that it is even the best method (where best == > > the > > > > method that returns a consistent and effective measure of the > > > relative value of a system compared to other systems and compared > > to > > > > buy&hold). > > > In fact I think it is a metric that encourages overfitting since > > ME > > > > could be very high if you optimise until you sync with the pivot > > > cycles (unless of course you believe that the cycle lengths will > > > persist, in which case you have found your ElDorado). > > > > > > Also another personal opinion - Pardo's explanation of DOF > > > doesn't hold any value for traders (I haven't found one that > > > does). The discussions, in this forum, on sensitivity analysis, > > > and other evaluation discussions involving Fred and Howard, were > > > much more topical and have much more relevance to real life > > > trading. > > > > > > Another approach you might like to think about: > > > > > > a) for benchmarking against the buy&hold (note that for a > > freelance > > > > trader this is a different cup of tea compared to institutional > > > benchmarking) > > > > > > - since we believe our entry offers us an advantage over the > > dumbluck > > > > B&H and our exits (stops) are fixed by the system rules i.e. they > > are > > > > the same for every trade - we can compare effectiveness of the > > > entries by setting the buy = every bar (use the same price as the > > > system buy price). > > > > > > Reason == to test our entries we need to compare their > > effectiveness > > > > against a random entry. If we make enough random entries then the > > law > > > > of averages means eventually we will end up entering on every bar > > an > > > > equal number of times.. > > > > > > Note: we need to use the same exit rules as per the system. > > > Model efficiency == system metric/every bar entry metric. > > > > > > b) to rank a system against other systems: > > > > > > compare your evaluation metric against the same metric for other > > > systems USING THE SAME DATA/PERIODS (allow for sample error). > > > > > > Note: the metric you use is up to you i.e. personal choice OR as > > Fred > > > > would say "whatever floats your boat". > > > > > > > > > > > > brian_z > > > > > > > > > --- In [email protected], Thomas Ludwig <Thomas.Ludwig@> > > > > > > wrote: > > > > Hi all, > > > > > > > > Rober Pardo suggests in his book "The Evaluation and > > Optimization > > > > of > > > > > > > Trading Strategies" the calculation of "Perfect Profit" (PP) > > > > > > which "is > > > > > > > the sum total of all of the potential profit that could be > > realized > > > > by > > > > > > > buying every bottom and selling every top". By comparing Net > > Profit > > > > of > > > > > > > your trading system with PP you can calculate the "Model > > > > > > Efficiency" > > > > > > > (ME). > > > > > > > > I think PP can be easily calculated as a stand-alone code by > > > > > > applying a, > > > > > > > say, 1% Zigzag. But how can it be done if I want to add ME as > > > > an additional metric in the Custom Backtester? The Equity() > > function > > > > is > > > > > > > used for your trading system and cannot be used for the Zigzag > > > > > > system > > > > > > > at the same time in order to compare both, IMHO. So the only > > > > > > solution I > > > > > > > can think of is to loop through all Zigzag signals and > > > > calculate > > > > > > the > > > > > > > profit programmatically. Or am I overlooking something? > > > > > > > > Pardo also suggests to calculate the Remaining Percentage of > > > > > > Degrees of > > > > > > > Freedom (through Used Dgrees of Freedom and Original Degrees of > > > > Freedom). Any idea if and how they can be counted in AFL? > > > > > > > > Regards, > > > > > > > > Thomas > > > > > > ------------------------------------ > > > > > > 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! 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