Saturday, September 29, 2007

Testing part 2






Above are some of the charts produced by a single portfolio simulation.
Note the equity curve, and monthly/yearly returns, are all on closed equity, which is generally what is important to the professional trader.
Just to explain what some of the terms mean in the previous post.

Position value limit means no position can make up more than 15% of the portfolio. This does not differentiate between stocks. So if I pyramided into one stock 3 times, this is regarded by this value as 3 positions, the same as 3 positions into 3 different stocks.


Portfolio heat means how much i were to lose if i was stopped out of all my positions. I have set this to 20% but in the trading timeframe the maximum has been 17%.


Entry and order type is market order, which means the actual entry will be a randomly generated figure between the high and the low of the price on the entry bar (weekly). Testing with these parameters gives me the flexibility to enter and exit stocks at any time during the week, not just Monday's open.


Trade processed by each simulation was 1265. This is how many trades were triggered by the system's entry. The number of executed trades is how many trades were taken, and this is governed by the amount of available trading capital.

Now, for a single simulation I can extracts all sorts of information from TradeSim, but below is the page that I'm most interested in.

Profit Summary

Profit Status: PROFITABLE
Starting Capital: $45,000.00
Finishing Capital: $281,900.17

Maximum Equity/(Date):
$236,900.17 (24/12/2003)
Minimum Equity/(Date):
$687.26 (9/04/1998)


Gross Trade Profit: $328,373.16 (729.72%)
Gross Trade Loss: -$91,472.99 (-203.27%)
Total Net Profit: $236,900.17 (526.44%)

Average Profit per Trade: $1,548.37

Profit Factor: 3.5898
Profit Index: 72.14%

Total Transaction Cost: $6,732.00
Total Slippage: $77,130.18

Total Trade Interest: $0.00

Daily Compound Interest Rate: 0.0841%
Annualized Compound Interest Rate: 35.9254%

Trade Statistics

Trades Processed: 1271
Trades Taken: 153
Partial Trades Taken: 0
Trades Rejected: 739


Winning Trades: 82 (53.59%)
Losing Trades: 71 (46.41%)
Breakeven Trades: 0 (0.00%)

Largest Winning Trade/(Date): $27,505.82 (7/12/2001)
Largest Losing Trade/(Date): -$4,233.32 (28/06/2002)

Average Winning Trade: $4,004.55

Average Losing Trade: -$1,288.35
Average Win/Average Loss: 3.1083

Trade Breakdown
Long Trades
Normal Exit: 121 (79.08%)
Protective Stop: 18 (11.76%)
Open Trade: 14 (9.15%)


Trade Duration Statistics
Winning Trades
Maximum: 1239 days
Average: 203 days
Minimum: 20 days
Losing Trades
Maximum: 245 days
Average: 63 days
Minimum: 0 days
Consecutive Trade Statistics
Maximum consecutive winning trades: 8
Maximum consecutive losing trades: 6
Average consecutive winning trades: 2.22
Average consecutive losing trades: 1.97


Trade Expectation Statistics
Normalized Expectation per dollar risked: $1.33
Maximum Reward/Risk ratio: 35.43
Minimum Reward/Risk ratio: -1.23
Average Positive Reward/Risk ratio: $3.00
Average Negative Reward/Risk ratio: -$0.59

Relative Drawdown
Maximum Dollar Drawdown/(Date): $13,533.74 (5/07/2002)
Maximum Percentage Drawdown/(Date): 5.9480% (5/07/2002)
Absolute (Peak-to-Valley) Dollar Drawdown
Maximum Dollar Drawdown: $24,202.46 (10.5600%)
Capital Peak/(Date): $229,178.79 (5/04/2002)
Capital Valley/(Date): $204,976.33 (14/03/2003)

Absolute (Peak-to-Valley) Percent Drawdown
Maximum Percentage Drawdown: 10.5600% ($24,202.46)
Capital Peak/(Date): $229,178.79 (5/04/2002)
Capital Valley/(Date): $204,976.33 (14/03/2003)

Now, to explain some key terms.

Profit factor: Ratio of gross trade profit to gross trade loss.
Profit Index: Total net profit to gross trade profit. 100% would mean no losses.


Slippage is the difference between the price you want and the price you actually pay. In our case, its the difference between the opening price of the stock compared to our actual entry price. Because our system in a trend following system, a fair bit of slippage is to be expected as we are entering traded in the direction of the trend.

Profit factor: Ratio of gross trade profit to gross trade loss.
Profit Index: Total net profit to gross trade profit. 100% would mean no losses.


Slippage is the difference between the price you want and the price you actually pay. In our case, its the difference between the opening price of the stock compared to our actual entry price. Because our system in a trend following system, a fair bit of slippage is to be expected as we are entering traded in the direction of the trend.


Amount of trades that are exited through the initial protective stop is 11%. This is healthy and means our stop isn't too tight. 10-15% is good for this figure. Lower the better.


Average trade duration. The longer you are in a trade generally the more profit you make. If winning trades are banked quicker this generally provides a smoother equity curve.


Relative drawdown is the loss in equity from a previous equity high.


Maximum string of winners and losses. Best if they are equal or favouring the winners (which is the case here). This system shouldn't have a problem here because it picks more winners (52%) than losers. This statistic would be of concern to those trading methods that pick 30-40% winners.

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