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On Fri, 21 Dec 2001, grehert@xxxxxxxxx wrote:
> I'd like to begin a discussion on the not very glamorous subject of "system
> reports." I'd like to start by paraphrasing another forum:
> http://groups.yahoo.com/group/tradingtheqqq
> ============================================================================
> =
>
> <<I was thinking about how best to report the results of a trading system.
> The discussion below was for a stock trading system but would apply to
> futures as well.
>
> Here's what I came up with:
>
> As I see it, there are 3 ways to analyze a set of trades that result from a
> mechanical stock trading
> system:
>
> A.-First method.) You always trade the same number of shares. For example
> each time you get a signal you buy 1000 shares.
>
> There are two problems with this analysis. One problem is that, let's say
> you buy 1000 shares of a stock at $2.00 (i.e.,$2,000). Say it goes to $10
> and you sell and go flat. You have $10,000. Next the stock goes to $50 and
> you get a signal to buy. You need $50,000 but you only have $10,000.
> Therefore this analysis is untradable in real life.
>
> The second problem is that it overvalues profits from higher priced trades,
> i.e. a 10% profit on a $50 trade contributes $5, while a 10% profit on a $2
> trade only contributes 20 cents to the end result...though in reality, their
> profitability is equivalent.
>
> This method is how OmegaResearch calculates "Total Net Profit."
>
> B.-Second method.) You trade the same dollars amount. i.e. $10,000 on each
> trade. So if you have a $20 stock, you buy 500 shares. This time, say it
> goes to $10 and you sell. You have $5000. Your next signal is a challenge
> (you don't have the money)...again an untradable system in real life.
>
> & C.-Third method.) You trade the money you had at the end of your last
> trade. Say you buy 500 shares of a $20 stock ($10,000). It goes to $40 -
> you've got $20,000. Next trade, invest $20,000.
>
> I think this is the only rational way to analyze a trading system...though
> it is anti-martingale in that you buy less as your assets drop and more as
> they increase; but then nobody ever said the Martingale method was
> rational.>>
>
> So why did OmegaResearch choose such a terrible method for analysis? What
> type of analysis do other software programs use, Metastock in particular?
>
> Jerry Rehert
>
>
A method I used once was to limit a single trade by dollar amount and by
amount of reserve in the account. That seems similiar to your method B.
The rest of the code had some flaws, so I can't say how well it worked.
Mike
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