I developed an algorithm and I need a little help interpreting the results. I tested/optimized the algorithm with 1-min data on the ES from 2007-2010. There are only 2 or 3 variables that are optimized (targets and stop losses). I then forward tested on the data from 2010 thru to the present. I get the following results based on the last 3 years with of backtested trades: Sortino = 9+ Sharpe = 0.7 PF = 1.5 Win/Loss = 1.8 % Winning Trades ~50% Max Drawdown = 8% Annual RoR = 350% Basically it makes lots of intraday momentum plays on the ES/NQ. 50% work out. But the winners are about twice as profitable as the losers. The returns are pretty consistent on a monthly basis over the last 6 years. The equity curve looks relatively stable even though the drops in 2008/9 and 2011. But my sharpe is very low. And that's causing me some grief. I've double checked that I don't have any data-snooping bias. I've included IB's commision rates. But no slippage since its ES. But at the same time, I ensure that the tick has crossed my limit price before I close the trade. I initially tested this in Multicharts, but then wrote some code in java to also test it, and I get the same numbers. So I've got a decent P/L, drawdowns I can live with, but a really shitty sharpe ratio, I'm guessing because the stdev of the earnings is large and 50% are losers. I'm not done playing with the algorithm, but can anyone give me some insight into the sharpe ratio, and the other performance ratios? I've not developed algorithms professionally, so I don't have a basis to compare these results to - other than the sharpe should be much higher.
I wouldnt worry about Sharp ratio You need to forward test this in real-time. PF seems okay but there might be a little slippage anyway.
I'm definitely going to forward test live. I'm just trying to ensure I have something worth investing the time and money to forward test live. I working on a trial with MC. Not sure I would want to test with MC or write java code to connect directly to brokerage. I assumed I didn't need slippage since my contract size is small (10), the ES is so liquid, and I'm ensuring the price crosses my limit/stops or am using market order. Is that not the correct way to think of it? Either way, I'll add some slippage and see. If I remove my profit targets - I can get my sharpe up to 1.1.
You can also sign up for interactive brokers sim account, I recommend that. Expect 0-.25 points ES slippage.
Thanks ETN... If you don't mind - Limit orders should have zero slippage right? Only market orders. I want to double check as I enter limit orders to enter and market orders to exit. And if thats the case, my slippage per trade/contract would be 12.50/2 (assuming 1 tick slippage on the exit side).