Tag Archives: profit factor

On Investment Guru Accuracy

In a post yesterday with the title “Gurus Achieve An Astounding 47.4% Accuracy!”, Rick Ferri discusses results about the accuracy of 68 investment gurus in a study by the CXO Advisory Group. Contrary to claims made about the significance of … Continue reading

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Is There Any Future in Equity Index Trend-Following?

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

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

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

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

Some authors define trading profitability using the 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 profit/loss is positive, i.e. if it … Continue reading

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

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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