# Would you trade this system?



## Sicilian Trader (12 February 2010)

I have been doing a little back-testing of late and have been obtaining some mixed results due mainly to my limited knowledge of Amibroker's Formula Language, not so much my trading knowledge. I feel that during this trial and error journey of mine, i tend to drift aimlessly. Hence bringing me to ASF. 

I wanted to gauge from people - who have successfully backtested (then traded that system) - what kind of stats they aim for when backtesting. 

ie. 
- They will only accept a MaxDD of 50% if there is a CAR of 30%+; or
- They wont trade a system that has a MaxDD greater than 20%; or 
- They wont trade a system that has a standard error of greater than X%; or
- They look for a sharp ratio of X; or
- They look for a profitfactor of X+
etc etc

I would be keen in knowing the following:

1. People's thoughts on what they look for as realistic targets in their backtest results

2. Criticism on the backtest results attatched - pros, cons or anything that stands out.


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## Sicilian Trader (12 February 2010)

I also wanted to include some results that tech/a posted a while back where he stated that these are the sort results that people should aim for when backtesting and when trading. 

I would also be keen on hearing people's thoughts on this system as well, ie. whether it can be realistically achieved etc


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## Sicilian Trader (13 February 2010)

If this topic has already been covered in some details, could someone please post me the link? If not, it would be good to get some healthy discussion going.
Thanks


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## Trembling Hand (13 February 2010)

Sicilian Trader said:


> - They will only accept a MaxDD of 50% if there is a CAR of 30%+; or
> - They wont trade a system that has a MaxDD greater than 20%;




Clearly not a system trader but would max DD be linked to position size just as much as the system its self?


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## Wysiwyg (13 February 2010)

Sicilian Trader said:


> I would be keen in knowing the following:
> 
> 1. People's thoughts on what they look for as realistic targets in their backtest results
> 
> 2. Criticism on the backtest results attatched - pros, cons or anything that stands out.



A $365000 loss in 1 bar!!!!!!! Is that realistic? 
Back testing should be as close to real as possible as the software allows. Anyone can produce fantastic back test results and they don't mean nothing.


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## tech/a (13 February 2010)

There are different drawdowns
Initial drawdown which should in my view be < 20. % rule of thumb 
Peak to Valley drawdown which can be hit badly in a crash.
This is where your $360k Drawdown is likely to reside!
Large drawdowns like this generally occur as everything gets hit
it happens!
You can also remove the top 3 or so biggest losers and winners
to see more balance however you will find that these outliers generally support a system on the win side and kill it on the loss side encourage and look for one and work hard on 
inimising the other.


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## Sicilian Trader (13 February 2010)

> There are different drawdowns
> Initial drawdown which should in my view be < 20. % rule of thumb.



What do you mean by initial drawdown? 




> Peak to Valley drawdown which can be hit badly in a crash.



The peak and trough i have circled in this chart is my definition of max drawdown, is this the same as max peak to valley that you mention tech/a?

Also, do people concentrate on Sharpe ratios? and if so, what is the general rule of thumb people look for in a sharpe ratio? (ie. <20% for initial drawdown is generally acceped). 

I would think that a sharpe ratio of 0.46 (which is in the system results i have attached) is well too low

people's thoughts?


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## Sicilian Trader (13 February 2010)

here is the equity curve i am referring to


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## tech/a (13 February 2010)

Peak to valley is correct
initial drawdown is that which you get from stops/exits being hit before a sytem trades in profit


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## Sicilian Trader (13 February 2010)

tech/a said:


> Peak to valley is correct
> initial drawdown is that which you get from stops/exits being hit before a sytem trades in profit




1. So what do you think is the maximum drawdown (peak to valley) that should be acceptable?

 - Lets assume an EOD trading system that has a CAR (compounding annual rate) of 30%

- whats generally acceptable by novice traders like myself

2. 20% initial DD before any profit is generated seems high, is this normal? Does Amibroker spits these results out ?


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## Sicilian Trader (13 February 2010)

tech/a

this attachment shows your 'max equity' and 'min equity' points, whilst this is a peak and valley its not the peak and valley (maxDD) that we are referring to here is it?

What kind of MaxDD was this system generating either in backtest or in real trading?


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## tech/a (13 February 2010)

No this is the lowest value of equity And highest value over the life of the test period totally different to your correct chart


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