Back/forward testing & Expectancy & Profit Factor

[syusuf66]

Ah ok. Do you mind explaining how you’d calculate that exactly? 🙂

I’ve seen some varying ways to do it.

 

[Brumby]

Ah ok. Do you mind explaining how you’d calculate that exactly? 🙂

I’ve seen some varying ways to do it.

It is the ratio of :

Average $ winner = Total $ winnings/# of winning trades and

Average $ losses = Total $ losses/# of loosing trades

 

[syusuf66]

It is the ratio of :

Average $ winner = Total $ winnings/# of winning trades and

Average $ losses = Total $ losses/# of loosing trades

Ok, so I worked out mine to be

Average £ Winner - £100.33
Average £ Loser - £39.35

So my £ win/loss ratio would be

100.33/39.35 = 2.55

Right?

(last question I promise :cheesy🙂

 

[Brumby]

Ok, so I worked out mine to be

Average £ Winner - £100.33
Average £ Loser - £39.35

So my £ win/loss ratio would be

100.33/39.35 = 2.55

Right?

(last question I promise :cheesy🙂

👍

 

[Bradtex]

Profit factor of 1.38 on a backtest is not tradeable. Only reason you have higher return is because you have more trades. This is beginner stuff guys

 

[syusuf66]

Yet Brumby just posted statistics of a professional trader who made an 1187% return with that same profit factor..? Also explaining that profit factor is not the only stat worth considering.

So why isn’t this tradeable?

 

[Bradtex]

Yet Brumby just posted statistics of a professional trader who made an 1187% return with that same profit factor..? Also explaining that profit factor is not the only stat worth considering.

So why isn’t this tradeable?

Profit factor is not the only metric but the results he posted were mostly worthless. Some had very little trades.

It seems like completely different styles and trading systems were used so comparing is silly.

Profit factor will decrease as the number of trades increases but with less than a 1000 trades you should atleast have a profit factor of 1.6 or more.

 

[BearBull Trading]

Hi all

So I had a question about expectancy/profit factor as well as back/forward testing if you could help. I have been paper trading a system for over 2 years (haven't been able to afford starting capital during this time) and recently started back testing it. My current trades taken and figures are as follows:

Back testing
90 trades taken
Profit factor is 1.34
Expected £ per trade (risking £100 per trade) - £8.76

Forward testing
76 trades taken
Profit factor is 1.24
Expected £ per trade (risking £100 per trade) - £8.16

I am planning to continue to forward test it for the year, but back test it until I have 200 trades in total then make a judgement on whether or not I should use it.

So my questions are:

- Are my current profit factors and expected £ per trade acceptable or should I be aiming for higher? I heard as close to 2 is best.

- Is 200 manually backtested trades enough to get a good enough idea of how the system will perform in live trading/forward testing?

It is worth noting that these figures are taking into account spread deductions too.

Any help would be hugely appreciated. 🙂

Thanks

So with 35% win rate I reckon your Expectancy Ratio is around 0.24 ?

Profit Factor by itself is meaningless (to me).

To evaluate a trader/method/system I particularly look at return & max peak > trough drawdown....What are yours ?

In the real world of trading, with a finite amount of time & finite amount of capital , its important not to focus on the end point but how bumpy the road is in getting there.(most traders focus on the end point - but then most traders fail 😉)

Based on the numbers you have posted...

Are they "good"...No (imho)
Can you make money over time with that....Yes (if nothing ever changes & you have enough money & time to survive/trade through long losing streaks/drawdowns) (Most traders don't have enough $ or time)

Trade Well...
BBT

 

[Bradtex]

Annual returns is important, very few people are willing to sit through multiple losing years.

 

[FXX]

So my questions are:

- Are my current profit factors and expected £ per trade acceptable or should I be aiming for higher? I heard as close to 2 is best.

- Is 200 manually backtested trades enough to get a good enough idea of how the system will perform in live trading/forward testing?

Thanks

my preference would be to measure your performance using the sharp ratio as it accounts for drawdown in a more meaningful way. So you might have taken a big loss on one trade and made it back over several trades. The profit factor will hide the fact that you had a large drawdown and represent a false illusion of your overall success. The sharp ratio however will reflect the drawdown as the method of measuring success is weighted on risk.

Your sample size should span the full economic cycle instead of a static number of trades. This strategy would test your success rate through various market conditions which will yield a higher quality measurement of the longevity of your strategy.

 

[tony1979]

To your credit, you have nailed a very important point - what would be an objective benchmark. In the book "TRADING SYSTEMS, Secrets of the Masters by Joe Krutsinger, a total of 17 systems were featured that were shared by a number of traders including Michael Connors, Joe Dinapoli, Larry Willams et al. Summarised below are some of the key statistics from their systems which individually covered between 10 to 15 years of test data.

Unfortunately a key statistic missing is drawdown which in my opinion is the most important piece of data. You will noticed that not a single factor is the key driver but how the pieces come together that drives overall profitability.

Finally, some sense spoken.

Be careful with forums and seeking advice - it's a 99% chance the person advising you is on aggregate a net loser.