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Which ratio to use?

  • #1
  • First Post: Nov 19, 2006 9:09pm Nov 19, 2006 9:09pm
I am basically going through live trades and analyzing them after I get 20 trades or so to see how it's doing

My question is, what ratio do you guys use in calculating a system performance? I've been looking into Sharpe ratio and kelly %. What other ratios can I use???????

ps; sharpe is pretty confusing, i dont' even understand it too well

thanks!
  • #2
  • Nov 19, 2006 9:17pm Nov 19, 2006 9:17pm
what I do is analyze several groups of 20-50 trades, with the different groups spaced out over several months. If all the groups have a good win to lose ratio and a low relative drawdown (under 20%, 15%) then the system is good.
  • #3
  • Nov 21, 2006 7:26pm Nov 21, 2006 7:26pm
I think that 20 trades are not enough to completelt evaluate a trading strategy or system, but they are going to give a hint for sure...

To evaluate a trading system, read Van Tharp book, Trade your way to financial freedom, you will find many useful measures to calculate....

In my opinion, you only need to know your expectancy (How many dollars earned in profits against how many dollars risked, successful trading systems usually have a positive expectancy & above 0.5) & you need to know your average win/loss ratio & the final thing is your average position size & try to optimize all those 3 factors for the future...

I prefer those 3 measures because they are very collective..

Expectancy measures the efficiency of the system as well as the profitability versus risks...If you are getting less profits per dollar risk, then your risk profile is high & this is not good in general...

The average win/loss ratio measures the probability of the system & how many times on average you are right versus how many times you are wrong....It is very useful to get this as you might employ different position sizing strategies based on this ratio...For example, if your system is having a high win/loss ratio, then you might need to add up to your winning positions faster than normal....If you are having a low win/loss ratio then you will only add to your winning positions after a lengthy amount of time...

And finally, the average position size measures both your account ability for drawdown as well as appreciation....If your average position size is large relative to your total equity at that time, your risk profile is high & thus you should be expecting to have either a high win/loss ratio or an expectancy of more than 1 at least....

Read the book, you will get a better understand about these concepts than I am explaining for sure...


Thanks,

Nader
  • #4
  • Nov 21, 2006 8:32pm Nov 21, 2006 8:32pm
thanks, i did read the van tharp book once. I guess I'll reread that particular section
  • #5
  • Nov 22, 2006 5:55pm Nov 22, 2006 5:55pm
100 forward trades

profit ratio = winrate/(1-winrate) * (total won/total loss)

<1.10 you probably will loose your money or be flat
1.10 bare minimum - 90% chance to double capital in 11,000 trades
1.20 slow system - 90% CTD in 1,200 trades
1.30 usable system - 90% CTD in 500 trades
1.40 average system - 90% CTD in 250 trades
1.50 good system - 90% CTD in 190 trades
1.60 very good system - 90% CTD in 125 trades
1.70 excellent system - 90% CTD in 100 trades
1.80 amazing system - 90% ctd in 80 trades
>2.00 holy grail - 90% CTD in 50 trades

this is all based on Risk of Ruin of 0.10%. also, how many times you can trade in a year really determines how holy your grail is
  • #6
  • Nov 22, 2006 8:11pm Nov 22, 2006 8:11pm
Quoting witchazel
100 forward trades

profit ratio = winrate/(1-winrate) * (total won/total loss)

<1.10 you probably will loose your money or be flat
1.10 bare minimum - 90% chance to double capital in 11,000 trades
1.20 slow system - 90% CTD in 1,200 trades
1.30 usable system - 90% CTD in 500 trades
1.40 average system - 90% CTD in 250 trades
1.50 good system - 90% CTD in 190 trades
1.60 very good system - 90% CTD in 125 trades
1.70 excellent system - 90% CTD in 100 trades
1.80 amazing system - 90% ctd in 80 trades
>2.00 holy grail - 90% CTD in 50 trades

this is all based on Risk of Ruin of 0.10%. also, how many times you can trade in a year really determines how holy your grail is
sweeeet! I love the analysis here. Thanks!
  • #7
  • Nov 22, 2006 8:16pm Nov 22, 2006 8:16pm
Quoting witchazel
100 forward trades

profit ratio = winrate/(1-winrate) * (total won/total loss)

<1.10 you probably will loose your money or be flat
1.10 bare minimum - 90% chance to double capital in 11,000 trades
1.20 slow system - 90% CTD in 1,200 trades
1.30 usable system - 90% CTD in 500 trades
1.40 average system - 90% CTD in 250 trades
1.50 good system - 90% CTD in 190 trades
1.60 very good system - 90% CTD in 125 trades
1.70 excellent system - 90% CTD in 100 trades
1.80 amazing system - 90% ctd in 80 trades
>2.00 holy grail - 90% CTD in 50 trades

this is all based on Risk of Ruin of 0.10%. also, how many times you can trade in a year really determines how holy your grail is
Great information, can you say where you got this from?
  • #8
  • Edited Nov 23, 2006 9:12am Nov 22, 2006 9:42pm | Edited Nov 23, 2006 9:12am
lots and lots of math. you should see all the programs and equations my trading group has researched
  • #9
  • Mar 14, 2007 4:05pm Mar 14, 2007 4:05pm
Quoting witchazel
100 forward trades

profit ratio = winrate/(1-winrate) * (total won/total loss)

<1.10 you probably will loose your money or be flat
1.10 bare minimum - 90% chance to double capital in 11,000 trades
1.20 slow system - 90% CTD in 1,200 trades
1.30 usable system - 90% CTD in 500 trades
1.40 average system - 90% CTD in 250 trades
1.50 good system - 90% CTD in 190 trades
1.60 very good system - 90% CTD in 125 trades
1.70 excellent system - 90% CTD in 100 trades
1.80 amazing system - 90% ctd in 80 trades
>2.00 holy grail - 90% CTD in 50 trades

this is all based on Risk of Ruin of 0.10%. also, how many times you can trade in a year really determines how holy your grail is
This is interesting. How is winrate defined?
  • #10
  • Last Post: Mar 14, 2007 7:04pm Mar 14, 2007 7:04pm
what's a great idea..
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