33 lines
2.0 KiB
Markdown
33 lines
2.0 KiB
Markdown
# Chapter 6. Preliminary (初步的) Analysis
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A complete performance report is long, only few worth notice.
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## Ground Rules
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1. Performance report should be based either on live data or on a walk-forward test.
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2. Should be multiple years of data (5 ~ 10 years), with a multiple trades (30 ~ 100 trades)
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3. Review performance reports without position sizing applied (only view single trade strategy)
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4. Accurate assumptions for commission and slippage.
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## Numbers to look in performance report
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1. **Total Net Profit**: e.g. with a walk-forward backtest, annual net profit should be $5,000 per year per contract minimum, preferably $10,000 or more.
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2. **Profit Factor**: gross profit divided by the gross loss (including commissions) for the entire trading period.
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1. Anything over 1.0 is good
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3. **Total Number of Trades**: ensure enough trades are taken. (120 ~ 400 in reports)
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4. **Average trade net profit**: it's after commissions and slippage.
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5. **Average Losing Trade**: combined with average trade net profit to calculate expectancy
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6. **Expectancy (期待)**
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1. Normal expectancy = $ average winners * win % + $ average losers * lose % = average trade; average $ loser is -ve
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2. **Tharp Expectance (promoted by author)** = (average $ winners * win% + average $ losers * lose %)/(- average $ losers);
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1. It's risk-adjusted. i.e. every $ you risk, what's your expected return?
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7. **Total slippage and total commissions**
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1. Total slippage (spread) is more critical. (as we buy at ask, sell at bid)
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8. **Maximum Drawdown**: how much an investment or trading account is down from the peak before it recovers back to the peak.
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## Graph to look after performance report
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1. **Closed trade equity graph**: An equity curve is a graphical representation of the change in the value of a trading account over a time period
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1. 1st thing in equity curve: slope.
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2. 2nd thing in equity curve: flat periods. A good strategy should steadily grow.
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3. 3rd thing in equity curve: drawdown periods. No drawdown? Problem hidden. |