Effeciency of an Auto Strategy

Discussion in 'Automated Trading' started by AnonymousTrader, Mar 24, 2005.

  1. Here's an interesting story:

    I was approached by someone who wanted to run his strategy auto. We've done some tests (forward with tiny test size) and saw an interesting thing: His strategy had a 85% mean average win rate.

    We got into an argument...
    He thinks he found the holy grail.
    I told him his strategy is not perfectly efficient.

    It would be much better if the win rate (winning percentage) was in the low 50s.

    What do you guys think?
  2. Not following your logic ...
  3. If you are running a strategy above 80% winning you are not efficient.

    You should either a) increase size or b) increase some other parameters to get the volume up and percentage down to lower 50s.

    Efficient Frontier my friend.
  4. tntneo

    tntneo Moderator

    I disagree
  5. Disagree; or I am stilll brain dead and need further explanation...
  6. Is your assumption that by increasing bet size your percentage of return will diminish?
  7. Paul,

    How is life?

  8. ?????????????????????????????

    Are you talking about market impact ?
  9. tntneo

    tntneo Moderator

    Life is good.

    regarding win ratio.
    some strategies require a very high win ratio. I hate to generalize, because I don't know about everything in trading. but I know what I do. So let me talk about that.

    If I hold for a short time, the win ratio has to be high. hard to maintain a high profit factor otherwise.
    If I hold longer, the win ratio can drop and risk reward will maintain profit factor.

    Also, win ratio is useless by itself. My main indicator is 'profit factor'.

    I understand that the more you have impact on the market, the smaller your win ratio and still you can be very profitable (well, I would, once again, watch the profit factor).
    But this is only imo when you hold long enough to make it worthwhile and allow the market to absorb your trades.

    there are several trading styles and holding times etc.. claiming this or that does not work or is better, without proper context is not so helpful.
  10. mind


    hit ratio and payoff (avg win/ avg loose) only make sense in context. maximising profit factor or sharpe ratio will identify the optimal point of balance.

    someone made the funny comment that his "short out of the money puts" has a hit ratio of 99.5% ...

    #10     Mar 24, 2005