Mike, Thank you for this information, it was very helpful. I can understand pain versus gain better. That is what I wanted to know. How can I use the statistics to know which have more gain versus pain.
Tom --- In [email protected], "Mike" <sfclimb...@...> wrote: > > Tom, > > There are any number of formulas people use to evaluate results. Many follow > the axiom of "no pain, no gain" and are expressed in the form of a ratio or > as numerator over denominator. These simply describe how much pain had to be > endured in order to accumulate the gain. > > With that in mind, you should be able to figure out which part of the > equation represents the pain, which part represents the gain, and whether a > large number is good or bad. Hint; Variance, as expressed by standard > deviation, is pain. > > Using one of your examples; A big CAR (gain) is only part of the equation. > When you also taken into consideration the MDD (pain) you may not be as > attracted to the strategy. A 50% CAR would be great, but not as palatable > when the cost is a 75% drawdown. Too much pain for the gain. Most would > prefer less pain (lower MDD) even if it meant a lower gain. > > Note that CAR/MDD can result in a larger number in either of two ways: A > large CAR over a moderate MDD, or a moderate CAR over a small MDD. As such, > trying for a smaller MDD is as benificial as trying for a large CAR, and > trying for both gives even better results. > > Answering your specific questions: > > - 12 is bigger than 2, so yes a CAR/MDD of 12 is good. You have experienced > 12 times more gain than pain. > > - The K-Ratio description is out of date. The formula has since been revised > such that (according to Howard Bandy) 0.15 or better is good. Note that > K-Ratio uses standard deviation and so penalizes positive variance as much as > negative variance. Some people prefer to use ulcer index for this reason. See > http://www.tangotools.com/ui/ui.htm > > - A lower ulcer index is better. As suggested by the name, a bigger ulcer > means more pain. > > - I have found Bandy's approach to finding a fitness function usefull. He > suggests that a good way to decide whether a measure suits your personal > preferences is to look at the equity curve of a number of different > strategies or parameter combinations and arrange them in order of best to > worst (based solely on what you feel about the chart). Then look at the > measurements and see whether the progression of values reflect your > arrangement. > > For example; If the highest CAR/MDD was for your favorite chart, the next > highest CAR/MDD is for your next favorite, and so on all the way down to your > least favorite, then CAR/MDD would be a very good metric ("fitness function") > for you to compare strategies with, since it so closely correlates to the > type of equity curve that you favor. > > Generally, measurements that contain both a gain element and a pain element > are good candidates for fitness. Looking at only one side (e.g. only CAR) or > the other (e.g. only MDD) generally does not work well in out of sample data. > > Some candidates are CAR/MDD, RAR/MDD, Ulcer Index, UPI, K-Ratio, etc. > > Mike > > --- In [email protected], "professor77747" <professor@> wrote: > > > > Thank you for your replies. However, I have the way they are calculated, > > but I don't know what they mean. For instance, CAR/MaxDD is good if bigger > > than 2. My formula is over 12. Is that good? > > > > However, the K-Ratio should be over 1.0. My forumula is .06. So that must > > be bad. > > > > I don't know how to judge my formula because I really don't understand how > > to interpret the figures. > > > > What should the Ulcer Index be. Is higher better or worse. > > > > I have just compared my formulas using Profit and Downdraw. I take the > > highest profit as long as the downdraw is close. > > > > Tom > > > > --- In [email protected], "Mike" <sfclimbers@> wrote: > > > > > > http://www.amibroker.com/guide/h_report.html > > > http://www.investopedia.com/categories/formulas.asp > > > > > > Mike > > > > > > --- In [email protected], "professor77747" <professor@> wrote: > > > > > > > > > > > > I have a very profitable formual that I have been autotrading for over a > > > > year. However, it is also risky. I have another formula that is not as > > > > profitable, but is also not as risky. My formula trade almost exactly as > > > > a backtest except for the price which varies by so little that it is not > > > > a factor. > > > > > > > > I don't understand any of the risk % factors in the top section and the > > > > factors below the drawdown figures in the bottom section. > > > > > > > > Here is a link to the statistics for last year which are very similar to > > > > this year except that there is more data. Statistics > > > > <http://success101.biz/Backtest%20Report.htm> > > > > > > > > Please help me understand these statistics. Thanks > > > > > > > > Tom > > > > > > > > > >
