Hi,
as a newbie, I get lost among the multitude of metrics that exist for evaluating and comparing systems.
Could any of you who have been around for many years and have tried everything help me out a little with this?
My friend Gemini (who I've already overwhelmed...) finally recommends, in order of relevance for evaluating systems:
EXPECTATION (which I'm not sure is the same as Amibroker's Average P/L %) and 2. OPPORTUNITY FACTOR.
The calculation used is: (Avg. Win (€) x % Win (%) + Avg. Loss x % Loss (%)) / |Avg. Loss|
If, for example, E = 0.40, it means it generates 0.40 units of net profit for each unit of average loss.
If I then have an average of 100 trades/year (Opportunity Factor) and the AVG. LOSS is -€200, then 0.40 x |200| x 100 = €8,000/year average expected profit
NET PROFIT (€)
CAR% - 5. EXPOSURE% - 6. RAR%
MAXDD% (as a percentage, although Cagigas has corrected me and says it should be in €)
RECOVERY FACTOR (RF) Net Profit (€) / MaxDD (€)
CAR%/MAXDD%
SHARPE RATIO
TOTAL NUMBER OF TRADES
Perhaps I would add information on expected losing streaks.
Are these 12 metrics sufficient and valid for evaluating and comparing systems?
By sufficient, I mean that no more are needed.
By useful, I mean that they are normalized metrics and can be easily compared between systems with different assets, timeframes, initial capital, sizing, etc.
I know it's a personal thing and even depends on what each person wants to achieve with their systems, but some specific metrics must be the basics, right?
The main important point here is that you have robust trading system/s whereby when the market/s have a sook, you have full confidence in your system/s that you can lean strongly against and you don't stop pulling the trigger.
So with metrics, as you say, it's more of a personal preference. In my opinion, some of them are 'a nice to have' rather than a must - the 'must' is robustness in your strategies and the application of your entire trading process.
I personally look at quite a few metrics but for me, the must haves are:
CAGR
MaxDD
Exposure
Number of trades
For newbies, it's important not to get too hung-up on the metrics when starting out - way more serious elements to get right such as having robust strategies and developing a super strong trading psychology (without the correct psychology it doesn't matter how good your system/s are!).
Thank you so much for your feedback, I really appreciate it.
I'm prone to analysis paralysis, which is why I find it so hard to get started. It's time to start backtesting the many systems I've been collecting to see if I can choose a few and create a robust portfolio. Then I'll see if I can execute it with discipline.
Thanks again.
@yonsi, here’s a simple blob article that explains what the main AmiBroker metrics are trying to tell you, in human language (probably AI generated content).
It’s not super technical, but good as a first orientation before you dig in more advanced material (and you’ll also learn how numbers are written in India!).
Like most things in trading a lot of it is personal preference. My list is very similar to trendsurfer's. Primarily I focus much of my efforts on risk-management, so Max %DD is VERY important for me as I know that's the metric that measures the max pain of the model. If you know that you'll never have the discipline to hold positions that are down over 25% then you know regardless of how good your model is in testing, if it's already had a -30% max drawdown then you won't have the self-discipline to trade it with real dollars. So focus on what YOU as a trader are looking for, then find the metrics that best describe it.
