{"product_id":"v14-c03-measuri-pdf","title":"V.14:3 (115-118): Measuring System Performance by Lars N. Kestner","description":"TRADING TECHNIQUES\u003cbr\u003e\u003cbr\u003eMeasuring System Performance\u003cbr\u003e\u003cbr\u003eWant to improve the evaluation of your trading systems? Here's a new\nperformance measure that uses some statistics to measure profitability through\ntime.\nby Lars N. Kestner\u003cbr\u003e\u003cbr\u003eStarting with an idea and developing a trading system is a relatively simple and straightforward process. Because\nit is a simple process, it is possible to create numerous systems in a short time. Since trading is a profit-oriented process, our interest lies in the performance of the best systems created, not the number of systems created. How,\nthen, can performance be determined in order to select the optimal system? Looking at total profits is a major part of\nthis question, but other factors are perhaps as important, if not more. Consistency of profits is probably the most\ninfluential factor in performance. Basing performance evaluation on consistency of returns can provide better insight\nto our ultimate question: How will the system perform in the future?\u003cbr\u003e\u003cbr\u003eMany measures exist to quantify trading system performance, but all have certain weaknesses. Some can be biased\nby one or two big trades, while some do not account for risk properly. Some are biased by correlation in returns,\nwhile others are not comparable over different periods. I have developed a new method of evaluating performance\nthat is more robust than current popular techniques. This method, which maintains the idea of measuring reward as\ncompared with risk, utilizes more advanced statistical techniques to quantify performance. Rather than simply\nlooking at returns independently, consistency of results through time will be the focal point of this new performance\nmethod.\u003cbr\u003e\u003cbr\u003eThe new measure, which I call the K-ratio, works with the equity curve of a system. An equity curve is simply a\nchart of accumulated profits through time. A mathematical model must be created for equity to calculate the\ncomponents of the new method. In the model, equity on any day is explained solely by its distance from the start of\nthe test.","brand":"store-traders-com","offers":[{"title":"Default Title","offer_id":52133816107377,"sku":"\\V14\\C03\\MEASURI.PDF","price":2.95,"currency_code":"USD","in_stock":true}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/0900\/3843\/6209\/files\/unnamed_3ac35f58-f475-4cca-a8ca-a9fd7adea03f.jpg?v=1739653189","url":"https:\/\/shop.traders.com\/products\/v14-c03-measuri-pdf","provider":"Stocks \u0026 Commodities","version":"1.0","type":"link"}