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  • Strategy Perfomance Summary

    Good Morning,

    So I decided to take a look at the automated system Multicharts has to offer and it seems pretty user friendly. One thing I'm not to sure about is the scripting and analyzing the performance history. I'm new to this but attached is what i'm looking at and as long as I see more positive then negative i'm happy. I backtested the system 1000 days and these are the results. any input is greatly appreciated.



  • #2
    A strategy performance report may contain a tremendous amount of information regarding a trading system's performance. While all of the statistics are important, it's helpful to narrow the initial scope to five key performance metrics:
    1. Total Net Profit
    2. Profit Factor
    3. Percent Profitable
    4. Average Trade Net Profit
    5. Maximum drawdown

    These five metrics provide a good starting point for testing a potential trading system or evaluating a live trading system.

    Total Net Profit
    The total net profit represents the bottom line for a trading system over a specified period of time. This metric is calculated by subtracting the gross loss of all losing trades (including commissions) from the gross profit of all winning trades. In Figure 1, total net profit is calculated as:
    While many traders use total net profit as the primary means to measure trading performance, the metric alone can be deceptive. By itself, this metric cannot determine if a trading system is performing efficiently, nor can it normalize the results of a trading system based on the amount of risk that is sustained. While certainly a valuable metric, total net profit should be viewed in concert with other performance metrics. (For more, see Profiting In A Post-Recession Economy.)

    Profit Factor
    The profit factor is defined as the gross profit divided by the gross loss (including commissions) for the entire trading period. This performance metric relates the amount of profit per unit of risk, with values greater than one indicating a profitable system. As an example, the strategy performance report shown in Figure 1 indicates the tested trading system has a profit factor of 1.98. This is calculated by dividing the gross profit by the gross loss:
    $149,020 / $75,215 = 1.98
    This is a reasonable profit factor and signifies that this particular system produces a profit. We all know that not every trade will be a winner and that we will have to sustain losses. The profit factor metric helps traders analyze the degree to which wins are greater than losses.

    $149,020 / $159,000 = 0.94
    The above equation shows the same gross profit as the first equation, but substitutes a hypothetical value for the gross loss. In this case, the gross loss is greater than the gross profit, resulting in a profit factor that is less than one. This would be a losing system.

    Percent Profitable
    The percent profitable is also known as the probability of winning. This metric is calculated by dividing the number of winning trades by the total number of trades for a specified period. In the example shown in Figure 1, the percent profitable is calculated as follows:

    The ideal value for the percent profitable metric will vary depending on the trader's style. Traders who typically go for larger moves, with greater profits, only require a low percent profitable value to maintain a winning system. This is because the trades that do win (that are profitable) are usually quite large. A good example of this is trend following traders. As few as 40% of trades might be profitable and still produce a very profitable system because the trades that do win follow the trend and typically achieve large gains. The trades that do not win are usually closed for a small loss.

    Intraday traders, and particularly scalpers, who look to gain small amount on any one trade while risking a similar amount will require a higher percent profitable metric to create a winning system. This is due to the fact that the winning trades tend to be close in value to the losing trades; in order to "get ahead" there needs to be a significantly higher percent profitable. In other words, more trades need to be winners, since each win is relatively small. (To learn more, see Scalping: Small Quick Profits Can Add Up.)

    Average Trade Net Profit
    The average trade net profit is the expectancy of the system: it represents the average amount of money that was won or lost per trade. The average trade net profit is calculated by dividing the total net profit by the total number of trades. In our example from Figure 1, the average trade net profit is calculated as follows:

    In other words, over time we could expect that each trade generated by this system will average $452.79. This takes into consideration both winning and losing trades since it is based on the total net profit.

    This number can be skewed by anoutlier, a single trade that creates a profit (or loss) many times greater than a typical trade. An outlier can create unrealistic results by over-inflating the average trade net profit. One outlier can make a system appear significantly more (or less) profitable than it is statistically. The outlier can be removed to allow for more precise evaluation. If the success of the trading system in backtesting depends on an outlier, the system needs to be further refined.

    Maximum Drawdown
    The maximum drawdown metric refers to the "worst case scenario" for a trading period. It measures the greatest distance, or loss, from a previous equity peak. This metric can help measure the amount of risk incurred by a system and determine if a system is practical based on account size. If the largest amount of money that a trader is willing to risk is less than the maximum drawdown, the trading system is not suitable for the trader. A different system, with a smaller maximum drawdown, should be developed.

    This metric is important because it is a reality check for traders. Just about any trader could make a million dollars - if they could risk ten million. The maximum drawdown metric needs to be in line with the trader's risk tolerance and trading account size. (For more, see Protect Yourself From Market Loss.)


    Read more: Interpreting A Strategy Performance Report http://www.investopedia.com/articles...#ixzz4hAjiVZ33

    Comment


    • #3
      Inside is the exact step by step formula we've used to create EA that made 70% gain in its first year on a real account.
      Learn to create, test, improve, optimize and launch automated trading strategies without programming knowledge. Eventually, start generating 1000's of algorithmic strategies a month and test them live.

      https://stude.co/1081864/algorithmic-trading-strategies

      Comment

      Disclaimer: There is a risk of loss in trading futures, forex and options. Futures, forex and options trading are not appropriate for all investors. Only risk capital should be used when trading futures. All information is for educational use only and is not investment advice. Past performance is not indicative of future results.

      This website is hosted and operated by AMP Global Clearing, LLC ("AMP"), which provides brokerage services to traders of futures and foreign exchange products. This website is intended for customer support, educational and informational purposes only and should NOT be viewed as a solicitation or recommendation of any product, service or trading strategy. No offer or solicitation to buy or sell derivative or futures products of any kind, or any type of trading or investment advice, recommendation or strategy, is made, given, or in any manner endorsed by AMP and the information made available on this Web site is NOT an offer or solicitation of any kind. The content and opinions expressed on this website are those of the authors and do not necessarily reflect the official policy or position of AMP.

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      HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM.

      ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

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