Download Trading Systems: A New Approach to System Optimisation and by Emilio Tomasini, Urban Jaekle PDF

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By Emilio Tomasini, Urban Jaekle

Each day the sunlight rises at the horizon there are a few investors who make a fortune. It seldom occurs however it does take place, because the names of William Eckhardt, Ed Seykota, Jim Simons, etc remind us. and you'll be certainly one of them. 'Trading platforms' is an perception into what a dealer may still understand and do to be able to be successful at the markets. you do not need to be a rocket scientist to construct a successful buying and selling method. Divided into 3 components, this booklet highlights precisely how one can construct that procedure.

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Extra resources for Trading Systems: A New Approach to System Optimisation and Portfolio Construction

Sample text

Think again about what you did during optmisation and your system’s design and development when your profit factor goes over 3. Drawdown A broad definition of drawdown could be the largest loss or the largest losing streak of a trading system, whichever is the biggest [4]. In a more graphical way we can depict drawdown as the dip in the equity line between a highest high point and the successive lower point before a new high is made. In other words “total equity drawdown” is the open trade profits and losses plus the already closed out equity on your account.

If nothing special occurred then there is something wrong in the logic of the system. In order to evaluate which kind of drawdown we have to worry about, and which kind of drawdown is normal, it is paramount to calculate the average drawdown and its standard deviation. If the largest drawdown lies between one and two standard deviations from the average than we should expect a future drawdown quite close to what we had in the past. If the average drawdown is beyond two standard deviations from the mean than we need to rethink the logic of the system, provided that nothing special happened in the past that could justify the freak drawdown.

What we can recommend is to plot the historical average percentage value of the trades in order to have a clear picture of the profitability trend of the system over the years. Percentage of profitable trades The percent profitable trades number expresses the number of winning trades out of the number of the total trades. It is important not by itself (a trend following system can have a low percent profitable trades number such as 35% and still be a viable system) but because it can be used to gauge how the system is balanced in relation to the average winning trade/average losing trade ratio.

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