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PureBytes Links
Trading Reference Links
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Here's a good website with links to numerous papers on
performance measures:
http://www.performance-measurement.org
Trey
--- cwest <cwest@xxxxxxxxxxxx> wrote:
> I imagine it wouldn't be too difficult to contrive a
> comparison of 2
> differing equity curves so that they have the same
> SR. The point you make is
> that portfolios that do have the same SR require an
> overlay measure to
> differentiate them. My preference is to assume that
> the equity curve with
> the lower standard deviation is the better result,
> which is what your
> comments imply.
>
> -----Original Message-----
> From: DC010225 [mailto:DC010225@xxxxxxxxxxxxx]
> Sent: Monday, December 31, 2007 5:03 AM
> To: omega-list@xxxxxxxxxx
> Subject: Re: "The Sharpe Engine" My 2008 project
>
> Answer to cwest:
> >> System A and B have the same profit and the same
> SR. However, System
> >> A is superior to system B. For example, in Figure
> 18-1(a) System B
> >> has much larger drawdown than system A.
>
> Note: If you want to be a successful trader, you
> need books by Kaufman and
> Jack D. Schwager.
>
> Let's talk briefly about two cases:
>
> A. Case of newbie trader:
> He opens $5,000 account and starts day-trading stock
> index futures. After
> series of small losses, his account balance drops to
> $2,500.
> However, he is lucky, his indicators start working
> again, and he is
> experiencing a series of wins bringing his account
> finally to $10,000 level.
> He declares a victory (for his system similar to
> system B in Fig. 18-1a) ,
> and drunken with success he explores a myriad of
> performance measures.
> All these measures look the same to him. However, SR
> was developed by
> academia, is described in many books, and has a lot
> of nice features, so he
> is stuck with SR.
>
> B. Case of experienced trader:
> After trading for 20+ years, his account balance
> exceeds $1 million. System
> B used by newbie trader is absolutely not acceptable
> to him. A possibility
> of $1M profit is very tempting, but a loss of $500K
> could be devastating to
> his retirement plan. SR measure is useless to him,
> it can serve only as a
> starting point of evaluation.. He has to change his
> attitude in two areas:
>
> B1: He has to utilize (or invent on his own)
> performance measures
> de-emphasizing large gains and paying a special
> attention to pains /
> drawdowns.
>
> B2: The most of trading approaches (for example
> trend following systems
> applied to a large portfolio of futures markets with
> sophisticated position
> sizing) will not meet his performance criteria --
> they suffer with too large
> drawdowns. He has to discover and use methods
> offering steady gains and
> minimum drawdowns in all market conditions (up,
> down, sideways). Such
> methods exist, for example Options trading.
>
> So, depending on who you talk to, newbie vs.
> veteran, you have two very
> different perspective on trading and performance
> measures.
>
> DC
>
> ----- Original Message -----
> From: cwest
> To: omega-list@xxxxxxxxxx
> Sent: Sunday, December 30, 2007 11:06 AM
> Subject: RE: "The Sharpe Engine" My 2008 project
>
> I don't have Kaufman's book, so its hard to respond
> objectively to his
> example. Do the examples result in the same profit,
> or is one example more
> profitable than the other, but both have the same
> SR?
>
> -----Original Message-----
> From: DC010225 [mailto:DC010225@xxxxxxxxxxxxx]
> Sent: Sunday, December 30, 2007 8:06 AM
> To: omega-list@xxxxxxxxxx
> Subject: Re: "The Sharpe Engine" My 2008 project
>
> The divisor in Sharpe Ratio (SR) is and always has
> been the sd of return
> (not prices). Unfortunately, SR fails two of three
> criteria for good
> performance measure as explained in Perry J. Kaufman
> in "The New Commodity
> Trading Systems and Methods", look at pages 390 -
> 391 in 1987 edition.
>
> Figure 18-1 demonstrates:
>
> 1. Figure 18-1(a): Consecutive small losses (bad
> System B) and alternative
> small losses & wins (better System A) are the same
> according to SR
>
> 2. Figure 18-1(b): Large surges of profits (System
> A) and large losses
> (System B) are the same according to SR.
>
> In both cases System A is better than B and SR is
> not good in distinguishing
> them. More details in Jack D. Schwager.
>
> DC
>
> ----- Original Message -----
> From: John Pretorius
> To: omega-list@xxxxxxxxxx
> Sent: Sunday, December 30, 2007 8:20 AM
> Subject: RE: "The Sharpe Engine" My 2008 project
>
>
> Dennis
>
> You are quite correct.
>
> Many years ago I was introduced to the ratio by
> someone who defined it
> incorrectly and criticised it as I have just done. I
> have assumed all these
> years that the divisor was the sd of price rather
> than return. I then
> promptly closed my mind to it.
>
> Another fondly held prejudice bites the dust.
>
> John R Pretorius
>
>
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