"Industrial Strength" Is that a good thing or a bad thing?
Thanks, Howard On Tue, Feb 9, 2010 at 9:00 PM, reefbreak_sd <reefbreak...@yahoo.com> wrote: > > > I am no expert in backtesting, you need to address those questions to > Howard Bandy on this forum or buy his EXCELLENT book "Quantitative Trading > Systems" where he creates and backtests a variety of trading sysstems along > with commentary. I understand Howard is coming out with an advanced version > very soon. Also he has available a recording of a lecture he gave in > Australia detailing the development and backtesting of a trading system. The > cost is a trivial $1.95, but beware the lecture is "industrial strength". > > You can limit the dollar size of each position and limit the number of > positions you can hold, thereby removing the total dollars in the account as > a determinant of profit. > > Also note that there is several different levels of running the backtester. > Allowing a very high level of control over what it does - This comes at a > cost of complexity of programming. > > You can add custom written calculations to the backtest report. > > Reef > > PS > I personally feel that backtesting is a "hall of mirrors" where you can > easily fool yourself into thinking that you have a profitable system when > you don't. Or conversely - needlessly discard a workable system because of > poor backtest results. Be VERY skeptical of any results either good or bad. > > > --- In amibroker@yahoogroups.com <amibroker%40yahoogroups.com>, Ted Byers > <r.ted.by...@...> wrote: > > > > Thanks. That helped a lot. > > > > However, I am not especially happy with the following: > > > > System test report window > > > > > correctly_annualized_perc_return = 100% * ( (final_value/initial_value) ^ > ( > > 365 / days_in_test ) - 1 ) > > > > where x^y means rising x to the power of y > > > > > > The problem I find lays in knowing precisely what initial_value is > supposed > > to be. Yes, the formula is correct, and makes sense, if the initial value > > is fully utilized in the investment (such as the initial and final value > of > > a house one has purchased). However, in the system I am working on, at no > > point does the total value of all open positions exceed $100,000, and yet > I > > have been instructed to set, as a default for backtesting purposes, > initial > > cash at 1,000,000 (the trader we're working with doesn't want to deal > with > > any limits posed by the available cash). But that means I can arbitrarily > > improve the rate of return by a factor of ten if I use an initial value > of > > 100,000 or arbitrarily make it worse by using an initial value of > > 2,000,000. Obviously, I can't use an initial value less than 100,000 or > the > > trades the system recommends would not be possible, but apart from that > > constraint, that I can arbitrarily alter initial value without affecting > > total return seems to make this figure just so much meaningless BS. At no > > time, when using this code, is position size computed from the available > > cash. > > > > How, then, can I define things in such a way that ensures that the rate > of > > return actually has a meaningful value? So far, it seems I can only > compute > > a meaningful value for the rate of return for a specific trade (where the > > initial value is obviously the cost of buying the shares, for a long > > position, or the value received from the sale of shares, for a short > > position), but not for a collection of trades distributed over a period > of > > several years. Is there a standard way for handling this? One that is > > demonstrably valid? > > > > > > Thanks > > > > > > Ted > > > > > > On Mon, Feb 8, 2010 at 4:11 PM, reefbreak_sd <reefbreak...@...> wrote: > > > > > > > > > > > In AB, click on HELP -> SEARCH > > > type in "BackTester Report" in the search window > > > Under the "Select Topic" that comes back, click on "System Test Report > > > Window" and you will see a definition of each term. Many of these are > > > industry standard metrics of performance. > > > > > > You can go to www.investopedia.com and type in for example "risk > adjusted > > > return" and get a more detailed explaination of most of the report > items. > > > > > > Reef > > > > > > > > > --- In amibroker@yahoogroups.com <amibroker%40yahoogroups.com><amibroker% > 40yahoogroups.com>, Ted Byers > > > > <r.ted.byers@> wrote: > > > > > > > > Hi All, > > > > > > > > > > > > I am digging into how AmiBroker computes the various statistics it > > > reports > > > > on a given back test. > > > > > > > > For example, I see the following reported: > > > > > > > > Exposure % > > > > Net Risk Adjusted Return % > > > > Annual Return % > > > > Risk Adjusted Return % > > > > > > > > Where will I find the details of exactly how AmiBroker computes these > > > from a > > > > given suite of trades? Now, I know what a risk adjusted return is, > but in > > > > my previous work, it is based on 100% of the cash being invested, and > it > > > > carries a specific definition of "risk". In the system I am working > with > > > > now, it is rare for 100% of the available cash to be invested, and a > > > really > > > > really long lived trade lasts only a couple weeks (though 9 out of 10 > > > trades > > > > were profitable in my last back test using my own C++ code - which in > my > > > > view was quite bad - average position size of about 50,000 and total > > > profit > > > > over 2 years being about 10,000). It seems rather meaningless to > report > > > an > > > > annual rate of return if one is in the market for less than a month. > > > > > > > > In this "system", the position size is not a function of the total > amount > > > of > > > > cash available; so if these rates are defined relative to the total > > > amount > > > > of cash available, I can arbitrarily change these rates by increasing > or > > > > decreasing the amount of cash available, within limits. I am afraid > my > > > > understanding of these ideas is derived from the perspective of an > > > investor > > > > (where one buys a stock, and looks at returns based on the > combination of > > > > dividends and long term change in share value, adjusted for splits, > &c.). > > > > If I can see how AmiBroker computes these stats for a given backtest, > I > > > hope > > > > to understand these from the perspective of a trader. > > > > > > > > So where will I find the documentation of how AmiBroker computes > these > > > back > > > > test statistics? > > > > > > > > Thanks > > > > > > > > Ted > > > > > > > > > > > > > > > > > > > > > -- > > R.E.(Ted) Byers, Ph.D.,Ed.D. > > t...@... > > > CTO > > Merchant Services Corp. > > 350 Harry Walker Parkway North, Suite 8 > > Newmarket, Ontario > > L3Y 8L3 > > > > >
