Tag Archives: profit factor

Is There Any Future in Equity Index Trend-Following?

Posted on April 3, 2013 by Michael Harris

The problem of trend following is fundamentally simple: choppy markets reduce the effectiveness of trend-following algorithms and shorter trend durations reduce their profitability. There is no need for a more sophisticated analysis. About 15 years ago I derived an equation that describes the problems … Continue reading →

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Risk of Ruin For Dummies

Posted on November 2, 2012 by Michael Harris

A good percentage of  traders and investors get ruined because they are deceived into believing that they can be profitable in the longer term even if they are wrong more often than they are right provided they win multiples of what they lose, on … Continue reading →

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New Metrics that Make Sense are Rare

Posted on May 4, 2012 by Michael Harris

There are many metrics one can use in a search for trading systems. However, just a handful of the metrics are useful and the rest are either derivatives of them or lead to excessive curve-fitting to specific series. Some new metrics that are proposed constantly even collapse … Continue reading →

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The Most Important Performance Measure of Trading Strategies

Posted on March 16, 2012 by Michael Harris

Shortly after my post on Kelly maximization I received a number of emails from traders who are developing systems but are, understandably so in my opinion, a bit confused about which performance criterion or criteria to use when evaluating them. I understand why those … Continue reading →

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The Many Faces of Trading Expectancy

Posted on November 25, 2011 by Michael Harris

Some authors insist on defining trading profitability using the notion of expected value or expectation, a.k.a expectancy. However, it would only suffice for them to say that a trading system, trading method, or even investment program, is profitable if the net … Continue reading →

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Short-term Patterns With High Reward-to-Risk Ratio

Posted on October 18, 2011 by Michael Harris

A question that has come up a few times recently is about the dififculty in finding high reward-to-risk setups in various markets like equities, futures and forex or even whether such setups exist at all. I think it is an important question … Continue reading →

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What Every Trader Should Know About the Win Rate, Profit Factor and Payoff Ratio

Posted on April 18, 2011 by Michael Harris

Every trader should be aware that there is a formula that relates the win rate of a trading system, also known as percent profitability to some old-timers like me, to its profit factor and average win to average loss ratio, also known … Continue reading →

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Why trend following is hard – a quantitative answer

Posted on January 29, 2011 by Michael Harris

In this post I will try to demonstrate with a quantitative analysis why trend following is harder than other trading methods that use much shorter timeframes . I will start with the fundamental statement that a trading system is profitable if the sum of its … Continue reading →

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