Huh? I think you're wrong. But it depends on other factors. If your average win/loss amount is breakeven and you have an 80% win rate, you've got the grail. High percentage win rate has some advantages. m
Would you rather have an 85% win rate? or.... a higher average win to loss ratio? It boils down to if you believe your edge is "over fitted" Michael B. PS. I look at drawdown mainly...but thats me...I would choose to make half the profits with lower drawdown.
Some questions: How did you calculate the averaging result for adjusting some spike performance (as the 85% could be mainly due to spikes, if sample size is small), how many parameters for the averaging performance (as too many parameters could make the 85% not very robust), how many combinations for each parameter were tested (as a small combination could be hard to evaluate robustness), what was the % of profitable combinations (as a small % would make the 85% questionable), and what do you mean (how small number?) by tiny test size? How many markets have been tested for the system regarding the above questions. More data would be required. I would suppose the increase of size can be covered by the combinations mentioned above, by adjusting the values of a parameter. I wonder any adding parameters (that would reduce robustness) would increase size with profitable effects, as that may as well posssibly reduce size (number of trades). I'm in the process of learning the above. I don't quite understand clearly the relationship with efficient frontier (?).
Hi nononsense, I think tntneo was refering to profit factor in distinction to sharpe ratio. Profit factor = (Total Profit)/(Total Losses) while Sharpe = (AvgReturns)/ Stddev(Returns)) ... modifiedSharpe From my own observations, having a high profit factor doesn't always mean having a high sharpe (though usually it's the case)... this is due to the stddev factor in the sharpe calculation which penalizes the model for outliers. This isn't a factor with PF. Anyway, don't want to speak for tnt, but I'm pretty sure that's what he was talking about... and I would agree with him as well. I don't think it too wise to trade anything below a PF of 2 either. Regards.
onelot is right, that's my definition of profit factor. I also look at Sharpe ration nononsense btw. which indeed takes into consideration the smoothness of equity curve. I like Sharpe as high as possible obviously. I admit using profit factor more easily, it talks more to traders while Sharpe talks more to investors Both are fine by me. yes, it's also true that Sharpe will also catch your drawdown while profit factor can't. but like I said I usually focus heavily on profit factor, max drawdown and average drawdown, while number of trades is high enough to be statistically valid. tntneo
...and I always want to look at the equity curve. Some systems look so good in the stats, but the equity curve is the gold standard. m
Modern Portfolio Theory http://www.turtletrader.com/modern-portfolio-theory.html Combining Preference Theory and CAPM Efficient Frontier http://www.palisade.com/html/Articles/motta_preftheory.html Not sure how win-rate (say 85%) is (cor)related to the (high/ low) return vs (high/ low) risk before having a better evaluation.