What are acceptable Performance numbers

Discussion in 'Strategy Building' started by ehsmama, May 29, 2005.

  1. ehsmama


    I am wondering what numbers should I expect from a good Stock trading System.
    My age as a trader is below 2 years. The best results that I can come up with are in the attached documents. I use Wealthlab. Veterans please advise. As you might see that results are much below 100% annualized gains. Am I expecting too much? What do the numbers of Good Stock Trading Systems look like, Please enlighten me.
    Thanks in Advince.
  2. ehsmama


    Also, I might add - these results are for last 10 years data for a list of 100 stocks.
  3. toe


    ehsmama thats not bad out of o watchlist of 100 stocks, well done. A couple of thoughts, first unticking perfscripts if your only using the standard script will make it a bit faster. Next, I personally look at several performance indicators but the only one that can be used independently of the others is Sharpe ratio. A sharpe ratio above 3 is pretty good, 2 says you are on the right track. It is basically a measure of the slope vs straightness of the equity curve.

    There are also some other things you might want to take into account to see how tradeable your system is. Liquidity, try limiting trades to 2% of volume in the simulator, then see how large you can trade before performance degrades. Slippage, the best way I've heard of estimating slippage without actually trading the system is to look at the spreads of the various symbols.

    Curve fitting, very important to determine if your system is not curve fit (randomly produces good results). Look up DocAxel's BetterThanRndTest110 script on WealthLab site. It determines to what degree your trades might have been generated at random. You can search ET for acrary's old post on 'Edge Test' for a good explanation on why its valuable and how it works.

    Another way to determine confidence in the results of your system is wit 'Confidence Interval'. twigas AutoRunWL on the WL site will calculate confidence levels for you (I think you need excel for this). CI levels tell you the profit (or other performance metric levels) you should achieve with 95% confidence, based on the strength of your results and the number of incidents. Less trades in your system means a higher chance the trades could have happened randomly. Its easier to get a run of six heads in a row than twenty, as a result the fewer the number of trades the lower the Confidence Interval becomes. Hope this helps.
  4. ehsmama


    Lot of valuable information in your post.
    Thanks a lot,
  5. increase your leverage, then you can get your returns over 100%, but watch the DDs. I dont know what kind of system you are using but if it is trend following in nature you may want to increase the length of time you hold trades, maybe look at futures markets, they seem to work better.
  6. How did you pick these 100 stocks? Was there some criteria built into the selection process that you can explain without giving away your system or are these 100 stocks some public index components?

  7. it depends on what type of system it is in re to what is acceptable, ideally in any system you want gross profits to be at least twice the size of gross losses. most good systems look like this;

    win rate: 50%
    win/loss ratio: 2.2
    drawdown: 30%
    avg. ROI p.a : 50%

    but to get an idea of how hard it is to trade a system, look at the maxium time between new equity peaks, you don't want to be in a 12month drawdown if your trading 1 system.

    but at the end of the day for stock trading systems; measure the performance against the S&P500, if you can beat it with less risk -> your ahead of the pack:cool:
  8. ehsmama


    Thanks 5yrTrader,
    I have taken a loan against my house to put on the trading strategies, so yes I have leverage in that sense. Yes, this is a trend following strategy that uses End of Day Data only, so that I don't have to look at markets.
    Longer holding periods seem to increse DDs without increasing yearly returns, But profit per trade is lot more.
    Futures markets might be a possibility but I guess all novices like me start with Stock markets since it is most talked about.
  9. ehsmama


    A big disadvantage of Wealthlab I found was that you can't create your portfolios dynamically to filter stocks but have to work with static stock lists.
    And I at this stage didn't know of any tools that let you create portfolio dynamically based on RS, av volume etc.
    I think those tools if they existed would cost lot more than Wealthlab and I would not have any money left to trade after buying those tools.
    I just sorted top 100 stocks based on 55 day av. vol on the day I created a watchlist. Just made sure that it had stocks from most major Sectors.
  10. ehsmama


    Thanks Jhonnysharp,
    This helps me understand this systems results.
    #10     Jun 1, 2005