Usually wanting 100 trades minimum

As you know this SQN is of the core Filter in my experiments about EA Win rate.

My questions to you here:

- are you currently using it ?

- are you using is as a filter criteria (so after creating strategies) or as an common acceptance criteria (killing all strategies with SQN < x)?

- what is the limit (x) you are using and why ?

Thanks you in advance
Vincenzo

For example, I have a scalping system that may endure close to 90 small losses before it gains..... the numbers are atrocious, but the profits are lovely.

I tend to look at the equity curve as the main determinant.

here is a system with some terrible looking numbers, except that the equity curve is lovely as are the profits

I know this post is quite old but those numbers don't really look that bad when you take into account the equity drawdown, clearly your stop loss is very tight and if the trade doesn't fire off like a rocket immediately the trade is nullified and stopped out.

Anyways that's not really what my main question is on this whole thread. I generally try to optimize a strategy which I think will work well with wide parameters using SQN as the "search best" then when it finishes I generally use something like +-10 with net balance to further optimize it in hopes it'll find more trades at the expense of W/L ratio, possibly drawdown and in the end be more profitable over time. The thing is how do I know if my strategy is over-optimized or curve fitted? I know I could use the %OOS to see how those inputs work and obviously forward testing in real time. But is there a way to help avoid over optimizing strategies?

Will it be included also to free version?

System Quality number is already in the free version, it has been there for many, many months.

You will see it in the 'Generator', under 'Sorting'.

You will also see it in the strategy overview.

...when the market throws a new face........

Determine when and how that happens, and everything will be immensely easier.

The numbers may look great but the system can still fail.

For example, I have a scalping system that may endure close to 90 small losses before it gains..... the numbers are atrocious, but the profits are lovely.

I tend to look at the equity curve as the main determinant.

All of the ratios can be perfect and when the market throws a new face........ there can be a disaster, there fore, extensive walk forward and live forward testing is essential.

I suggest that you use the numbers as, perhaps, a benchmark only, and devise a thorough method of walk forward analysis using OOS in order to analyze your system.

Just an opinion.

here is a system with some terrible looking numbers, except that the equity curve is lovely as are the profits

I trade only DAILY data, all my strategy produce 200+ trade in 13 years daily data..

My market instrument on 5 major PAIR specification already PESSIMISTIC scenario (Spread, n swap larger than actual)..

This is my equity curve..

is my strategy too good to be true?? I alr check the robustness by moving paramater and TP and it's seems that the performance not quite sensitive when I change the input parameter..

Any Suggestion where my mistake is??

I suspect that strategy found by FSB that has low System Quality Number cannot be expected to use for trading too long into the future as the expected result can be much different from that given by FSB.

It also mean that you will have to use the latest data if you wanted the result to have some resemblance to that indicated by FSB.

Regarding the sort in FSB, here is a guide to the values in System Quality Number (Van Tharp)

The SQN number can be interpreted as your overall trading 'grade'. This data should not be deemed reliable until (> 30 trades). Stop prices must be entered for each trade to be accurate.

score
1.6 - 1.9  Below average but trade-able
2.0 - 2.4  Average
2.5 - 2.9  Good
3.0 - 5.0  Excellent
5.1 - 6.9  Superb
7.0 and above..... wow Maybe you have the holy grail...!!

Refer to the work of Van Tharp for further.

Hopefully this helps as we develop our systems

The interpretation of the score is only good if the number of trade is equal or higher than 100 ( http://tradingdiary.wikispaces.com/System+Quality+Number+(SQN) ).

here is my take on the IITM System Quality NUmber idea (SQN): and fat right tails. it’s what I said to chuck whitman on this topic

on my -1R loss exits: this is the result of a single trade decision cycle on that trade that is very effective

now, on the possibility of a 10R win that “skews” the histogram of results and increases the variability of the data set and therefore lowers SQN and therefore lowers recommended risk

the essential question is this: was the 20R a consequence of the act of entry, of the fact of entry, independent of any trader decisionmaking along the way?

if you have no influence over the achievement of 20R in the trade, then the argument that the increased variability suggested by the 10R return should reduce the SQN is warranted

because upside variability that is a result of the market’s “decision” ought to imply the potential of the same kind of downside variability suprising you

that is the essence of the marble game, that once you decide to play that the result is pure random function generator

BUT: what if you had played the washout pattern in SPY on 10 March and followed every rule and were able to manage the trade thru 6 iterations of successive Washout Cointinuation patterns and as a result of 7 cycles of trade decisions, were able to bring in 10R, yet never risked more than 1R on the downside

everything is now a function of how you classify that trade batch

if you say: that is one episode, and the trade is 10R, and the 10R implies i could have taken a 10R loss which is beyond my management ability, then i will say i disagree

if we have traded a WO pattern system 200 times and my 100 losses show an avg loss of less than 1R, AND my worst loss was 1.4R, and my trading mgt skills enabled me to manage risk properly all the way up the ladder, then simply treating the WOCs as 6 separate trades on avg of 1.6R (6x 1.6R = 10R) gives a true picture of the quality of the system

the Sortino ratio which examines the stats of just the losses with StDev is the right way to understand the losses and since computation is free you SHOULD do both the standard SQN AND a Sortino to better understand your loss pattern to make your decision on how much risk to take on

now, if i can get a 10R thru intraday trade mgt by getting a carefully engineered, risk controlled, very manageable morning hook which gives me a boost and my trade is a single continuous episode but Inever was in a position to experience a 10R loss, then you would be nuts to penalize that system

you MUST really know your edge, and where the 10R comes from and decide if it truly represents the possibility of expereincing a 10R loss

you MUST know your system thoroughly in order to create meaning, to fully understand its risks (as much as it can be understood)

portfolio heat rules and other heuristics must be in place to protect us against -10Rs beyond our control such as power outages, discontinuity in the mkts, so that we never commit the hubris error of LTCM

we are no where near that in our application

here is where SQN is VERY VALUABLE: when i have 5 sets of mechanical rules that i am testing, iindependent of trader discretion, as a check on the robustness of the mechanical framework           

SQN can give me the basis for deciding which to pursue, to revise and extend

what your studies are revealing is that you are understanding how the SQN math works

this is a good thing

example: this morning in the seminar we looked at a Triple Screen on GOOG which if executed mechanically would have given a .8R win going in to the close, but which had “open risk” ie trader initial cpaital at risk AND was in the red for 5 hours until near the close

by applying trader Quality to it, we engineered the entry timing in order to get a 2R iStop, and scratched the 1st trade, and then earned 6R on the identical setup on the next leg up.

the open risk was 15 minutes, when we moved to no lose, and then we spent 4 hours in the green until deciding to cash a 5R before the close

i guarantee that the 5R win should not be interpretted as implying increasing downside volatility and thus lowering SQN

coming to that conclusion would demonstrate IN MY OPINION, an inferior understanding of interpreting SQN

let me suggest what true Quality measure could/should include: amount of open risk x # of minutes

1st GOOG example: 15 min red all of which was <1R and then all green rest of the day up to a 5R win

correction that was the 2d GOOG example: the 1st GOOG exmaple eas mostkly red all day = lots of pain, low quality; compare the “time area in the red” to the “time area in the green” to really understand the “quality of each system.

charts to follow

bottom line: you better know where your outsize R comes from

you must be ruthlessly focusing on your R losses to ensure you are calibrated in identifying mkt risk to your idea

you must be open to the potentials of achieving risk managed high R wins, ie fat right tails

the end

=========================================================================

The statistic is beyond me, but I felt that the FSB Pro should advice us on the risk based on the criteria above of the systems found so we reduces the risk and understand more of it.

http://www.blueowlpress.com/WordPress/articles/measuring-system-quality/

http://www.blueowlpress.com/WordPress/articles/measuring-system-quality/measuring-system-quality-page-2/

In the second part of the article, it has a chart for Maximum Drawdown as percentage of Maximum Balance and another chart for Terminal Wealth after 500 trades.

Can FSB Pro generate the two charts shown in the article, I believe it will provide use more information on how much to fund the system to be able to cater for the expected drawdown and if it is worthwhile to trade the system on a long term basis?