Open Run 150/15
(Slow Lag of 150 and Fast Lag of 15) and examine the performance chart
and logs.
In the trade
log, locate the first trade entry
Inst
Units
Entry
Exit
P&L
SPC
6500 820901 119.525 831220
159.600 260487.50
The system
buys 6500 Units on 9/1/82 at a price of 119.535 and sells them on
12/20/83 at a price of 159.60 for a profit of 260487.50.
To see how
this works, scan down the metrics log to late August, 1982.
820827F
slow=113.110 fast=112.055 
820830M
slow=113.177 fast=112.817 
820831T
slow=113.254 fast=113.590 +
820901W
slow=113.306 fast=114.035 +
The fast
average crosses above the slow average on 8/31/82 (See the + sign).
Therefore, the system buys on the next open.
Again, look in
the metrics log for the prices.
820830M
OHLC:[ 115.90 118.20 115.05 118.15 ]
820831T
OHLC:[ 117.95 119.95 117.40 119.00 ]
820901W
OHLC:[ 119.30 119.75 116.90 117.15 ]
On 9/1 the
open is 119.3 and the high is 119.75. The system awards an
execution 50 percent of the way from the open to the high, or
119.525.
Again, from
the metrics log:
820827F Atr=3.176

820830M Atr=3.174

820831T Atr=3.115
+
820901W Atr=3.089
+
On 8/31 the
ATR is 3.115. The ATR Multiplier is 5 so the Risk_Per_Lot is 5 *
3.115 = 15.575.
On 8/31 the
Equity is 1,000,000 and the Heat (for the entire run) is 10% so the
Risk_Budget is 10% of 1,000,000 or $100,000.
The
Position_Size, then, is 100,000 / 15.575 = 6420.545+ and rounding
to the nearest 250, we get 6500 units.
To see another
run, with different test parameters, visit 325/85
. Notice the 325/85 winds up with about 13.6 times the original
stake whereas the 150/15 winds up with about 3.3 times the original
stake. Optimization is the process of finding the best set of
parameters
The
huntandpeck approach to optimization is to tinker around with your
parameter values to see how they effect the test results. You might
notice that the skid factor makes a big difference for systems that
trade frequently. You might also notice that you make the most
money with a slow system with a high heat and low ATR multiplier,
although this configuration also delivers very large drawdowns.
In the case of
veryhighheat / highdrawdown systems, the testing software also needs
to recognize other limits, such as margin calls, and stomach calls.
The
steamroller approach to optimization is to try every combination of
parameters. This is generally impractical. A tenparameter system,
with 20 values of each parameter would require 20^{10}
runs. One run for a complex system on a multiple instrument
portfolio might take several minutes.
A synthesis of
huntandpeck, steamroller and thinking about the results is likely the
best approach.
Steamroller
Spread Sheet Showing Bliss Function
Versus
Slow Lag and Fast Lag
Lighter
Color Indicates Higher Bliss
XAxis:
Slow Lag (Left:30; Right:530)
YAxis:
Fast Lag (Top:15; Bottom:285)
The
Upper Left Corner
is
the home of dysfunctional shortterm systems
The
Lower Left Region
shows
systems where the shortterm lag
is
longer than the longterm lag.
Pretty
Good Values: Slow=330; Fast=90