Trendfinder Trading Systems

Someone asked me what I look at when testing and analyzing a system.  He asked what was the minimum Profit Factor (Gross Profit / Gross Loss) I considered as a valid for trading, so I’ll start with that. 

Minimal profit factor varies depending on the kind of system.  Quite honestly I don’t really pay much attention to it.  For daytrading, which is all I do, I like to see 1.4-1.8.  Anything less than 1.4 probably has too low of an average trade and above 1.8 is probably overfit.  These are my opinions of course.

These PF’s include transaction costs (commission and slippage).  I always include transaction costs – it makes zero sense to me to not include them.  These Profit Factor’s include $35 roundtrip for commission and slippage because the trade-assist brokers that I lease my systems through charge an average of $20 roundtrip for commissions.  If you are trading in TradeStation for yourself then $20 roundtrip for commission and slippage should be plenty and the Profit Factor range might be 1.4-2.0. 

The main things I DO look at is average trade (absolute minimum $50 after transaction costs and really prefer $60 or higher) and the ratio of annual net profit to drawdown – ALL BASED ON OUT OF SAMPLE DATA.  Disregard in-sample data for system validity.  Basically if I have a system with out of sample results of an annual profit / drawdown ratio of at least 2 and an average trade of $60 or more after transaction costs then I have a tradable system in my opinion.  To confirm I’ll also look at the equity curve, Profit Factor and other things to reinforce the validity – especially the equity curve for consistency and as a check for overfitting (if equity curve chops around and then goes straight up that is not consistent, if the equity curve looks like a straight line then something is wrong somewhere in the testing!). 

Make sense?  Questions? 

gary

Trendfinder Trading Systems had no trades today.  There will be no trades tomorrow either due to the FOMC meeting and announcement.  Will be back to trading the futures markets on Thursday!

Trendfinder’s systems did not take any trades today.  With the FOMC meeting the next two days it could be interesting or really choppy….my preference is interesting!

Trendfinder’s systems were 4 for 5 this week – Bobcat II being the only one not gaining ground this week.

Another choppy day for options expiration.  Small losses today.

Today was very similar to yesterday – no follow through on the up move.  Ended up with very small losses across the board.  Perhaps this week being options expiration is at the source of the lack of follow through.  Overall still a nicely winning week so far thanks to Tuesday’s action.

The lack of follow-through in the up move today led to mixed results of Trendfinder Trading Systems.

Nice down day today allowed nice profits with every system that traded today.

No trade signals today. The Russell did have a possible breakout today – if so we should have some bigger ranges this week which could give us some nice winning days.

Trendfinder Trading Systems had no trades today.