The more trades the the better. If you can get 2000 trades to test with then thats ideal. More data wont hurt you, it can only prove your system is not robust which will save you $$$$. Ofcourse time period is important too, however the longer the type of trade the more years you have to test. A long term trend following system would have to be tested over decades. A swing trade or once a day system, between 10 and five years. For intra day system atleast three years. You also want to look at different types of markets for YM: Up markets eg 1999,2003 Down markets eg 2002, 2001 Low volality markets eg 2005 High volality markets eg 2002
I dont think you can make any money with system B, youll just about break even. And even if you had a 5:1 ratio, i would find it really hard to trade a system that only wins 35% of the time. Youd have to live through 10 to 15 losers in a row quite often.
No offense AskQuestions but profit factor and payoff ratio are both incredibly simple metrics and if you don't understand them, I highly recommend reading up on them until you can easily answer your question on your own. You definitely want at least that level of understanding before trading any system. Not to mention that when you ask others for help, you need to be wary of getting incorrect info e.g., what you got from man... FYI, profit factor intraday measures the exact same thing that it does on all other time frames -- how many dollars/euros/whatever your system has made for each one lost. Period. It's that simple, and it is NOT flawed. However, both Sharpe and Sortino ARE flawed because they FAIL to work as intended under certain circumstances that are not apparent unless you understand exactly how each is calculated. Study them in detail and you'll see what I mean. Also take a close look at the equity curves... they'll give you way more info than any single metric or group of metrics can.
i am not offended, and i appreciate any response, and i thank you for your time. i do understand what profit factor and payoff ratio mean, and they are indeed simple measures. what i wasn't familiar (and therefore asked for more info) was on sharpe and sortino. i still dont understand what should be considered as "Rf is an expected return of another "standard" asset" (http://en.wikipedia.org/wiki/Sharpe_ratio) and would appreciate any comment. could you elaborate on what are the "certain circumstances" in which the sharpe and sortino fail? last one, what exactly are you looking for when checking the equity curve? thanks
Hi. Personally, I've had several systems fail on me in the past couple year so I've kinda learned like everyone else, from mistakes. I'm still learning but here's some generalities I've applied, at least to 1-3 minute timeframes. Maybe it will also give you a warmer feeling about what you've developed; 1) Robustness - Basically, how well does your system perform on all (YM, ER2, ES, QM, and NQ). 2) Make sure you have commissions and at least 1 tick of slippage built in your model 3) Personally, I like Profit Factor greater than 1.5 and Sharpe > 4 4) Equity curve must be smooth 5) Ideally, I would like Longs and Shorts to contribute 50/50 6) Starting with a $25K account and trading only 1 contract, Annual Return greater than 30%, no compunding. 7) People have diiferent pain levels so try and determine if you can psychologically deal with your systems max consecutive losses and max system drawdown. Just some thoughts. Good Luck. --jstox
Only thought I would add to the previous post speaking of number of trades during your test period is this ... be cognoscente of the number of trades in your sample vs the average win..... you may find that as the number of winners goes up your average win goes down ... way down and you run the risk of getting chopped up. If the average win goes down to a level where you will end up in the negative when slippage and commission is taken into account you wanna know that ... sounds simple but ends up being an after thought to many folks.
appreciate your reply some questions: 1. the robustness issue sound important but do you really think the same system concept should apply to all major futures (YM, ER2, ES, QM, NQ)? are you personally familiar with such concepts? 3. about the Sharpe: i've asked this before but didn't get any answer. how do you calculate this value? are you using some software that does it for you? in the definition here (http://en.wikipedia.org/wiki/Sharpe_ratio), one should define what is the expected return on another "standard" asset, and i'm having hard time figuring what it should be. 7. very good advice. i'll keep that in mind thanks everyone, any more???
1) From my experience the results should at least breakeven when trading the other futures. Maybe some minor tweaks needed but it's a good indication of an over-optimized system. 3) I use Amibroker, automatically calculates the analysis stuff. 7) History does repeat itself. Yep, that ones critical --jstox