One approach would be to look at risk-adjusted net-profit, and in your case you are defining risk to be drawdown. There are then 3 approaches you could take (actually there are more than 3). In psuedo code, the three would be something like:
// step function penalty for MDD > 30% (the approach you described) Objective Function = IIF(MDD > 30%, 0, NetProfit); // linear penalty for MDD Objective Function = NetProfit / MDD; // linear + step function penalty (combo of above) Objective Function = IIF(MDD > 30%, 0, NetProfit/MDD); --- In [email protected], "ics4mer" <ics4...@...> wrote: > > Hi, > > Doing a bit of backtesting lately, and I was wondering how to limit the > drawdown while using another metric for the objective function. > > Lets say that I want to optimize for Net Profit, but I won't accept parameter > sets that result in a drawdown of more than 30% > > I know it can be done (AB does anything). > > Could somebody give me a pointer please? > I can't find explicit references to it in the archive, and I don't think I'm > ready for some of the more intricate parts of the CBT. > > TIA > > RZ >
