There is another, more subtle problem with the max DD measure, which is that by reshuffling the same trades of the same strategy you would get drastically different max DD figures. It's as though the same strategy suddenly changes from "good" to "bad" by simply rearranging the trades in time. In reality, it's still exactly the same strategy, with exactly the same risk/reward profile.
If this doesn't click in, think about this experiment. You have two coins, A and B, and you suspect that one of them is a fair coin, while the other one is a loaded one. So, you flip each one 1 million times. The results are: 500,000 heads and 500,000 tails for each coin. However coin A had a a maximum streak of 10 heads in a row, while coin B had a maximum of 5 heads in a row. Based on the Sterling Ratio adapted for coins, coin B would be determined to be 2 times more "fair" than coin A, when in reality, both coins are perfectly and equally fair. On the other hand, if you use the PI measure, it would be identical for coins A and B. -- You received this message because you are subscribed to the Google Groups "JBookTrader" group. To view this discussion on the web visit https://groups.google.com/d/msg/jbooktrader/-/svCLzimFb1gJ. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/jbooktrader?hl=en.
