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
SP----C
6500 82-09-01 119.525 83-12-20
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.
82-08-27-F
slow=113.110 fast=112.055 -
82-08-30-M
slow=113.177 fast=112.817 -
82-08-31-T
slow=113.254 fast=113.590 +
82-09-01-W
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.
82-08-30-M
OHLC:[ 115.90 118.20 115.05 118.15 ]
82-08-31-T
OHLC:[ 117.95 119.95 117.40 119.00 ]
82-09-01-W
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:
82-08-27-F Atr=3.176
-
82-08-30-M Atr=3.174
-
82-08-31-T Atr=3.115
+
82-09-01-W 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
hunt-and-peck 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
very-high-heat / high-drawdown 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 ten-parameter system,
with 20 values of each parameter would require 2010
runs. One run for a complex system on a multiple instrument
portfolio might take several minutes.
A synthesis of
hunt-and-peck, 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
X-Axis:
Slow Lag (Left:30; Right:530)
Y-Axis:
Fast Lag (Top:15; Bottom:285)
The
Upper Left Corner
is
the home of dysfunctional short-term systems
The
Lower Left Region
shows
systems where the short-term lag
is
longer than the long-term lag.
Pretty
Good Values: Slow=330; Fast=90
Coming up:
More on how to automate optimizations, how to include longs and shorts,
and how to handle multiple instruments.
