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Katz & McCormick 2000 the Encyclopedia of Trading Strategies

Katz & McCormick 2000 the Encyclopedia of Trading Strategies

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Table 15-l contains data on the baseline behavior of the MSES. The threshold
..was set high enough to prevent any net-based exits from occurring. The numbers
in this table are the same as those reported in Chapter 14 (Table 14-I) for an opti-

346

ma1 fixed stop and profit target. The abbreviations in Table 15-l may be inter-
preted as follows: SAMP = whether the test was on the training or verification
sample (IN or OUT); NETL = the total net profit on long trades, in thousands of
dollars; NETS = the total net profit on short trades, in thousands of dollars; PFAC
= the profit factor; ROA% = the annualized return-on-account; ARRR = the
annualized risk-to-reward ratio; PROB = the associated probability or statistical
significance; TRDS = the number of trades taken across all commodities in the
portfolio; WIN% = the percentage of winning trades; AVTR = the average prof-
it/loss per trade; and TRDB = the average number of bars or days a trade
was held.

There was great consistency between in- and out-of-sample performance:
The average trade lost $1,581 in-sample and $1,580 out-of-sample; both samples
had 39% winning trades; and the risk-to-reward ratios were - 1.46 in-sample and
- 1.45 out-of-sample.

Neural Exlt Porlfolio Results

Table 15-2 is the standard optimization table. It shows the in-sample portfolio per-
formance for every threshold examined and the out-of-sample results for the
threshold that was the best performer during the in-sample period.
In-sample, an improvement in overall results was obtained from the use of
the additional neural network exit. The average trade responded to the threshold in
a consistent manner. A threshold of 54 produced the best results, with an average
trade losing $832. There were 41% wins and an annualized risk-to-reward ratio of
-0.87. The numbers represent a dramatic improvement over those for the baseline
presented in Table 15-l. Out-of-sample, however, no improvement was evident:
Performance was not too different from that of the optimal MSES without the
neural signal element. In the tests conducted using the neural net for entries, per-
formance deteriorated very significantly when moving from in-sample to out-of-
sample data. The same thing appears to have happened in the current test, where
the same net was used as an element in an exit strategy.

Baseline Performance Data for the Modified Standard Exit Strategy
to Be Used When Evaluating the Addition of a Neural Forecaster
Signal Exit

SAW1

NETI. 1

NETS 1

PFAC 1

RCA% /ARRR IPRO6 Il-R06 1

WIN% [

AVTR ITRDB

IN

I-19761

-4073)

0.831

-10.31

-1.461

1.0000~

38261

391

-15811

6

OUT

I

-9741

-163zl

0.641

-21.61

-1.451

O.BS651

16491

391

-15501

8

CHAPTER 15

Adding AI to Exits

341

TABLE 15-2

Portfolio Performance of the Modified Standard Exit Strategy with an
Added Neural Signal Exit Evaluated over a Range of Threshold
Parameter Values

Neural Exit Market-by-Market RBBUitB

Table 15-3 shows the performance data for the portfolio, broken down by market,
for the optimal MSES with the added neural signal exit. The results are for tire
composite exit with the best threshold value (54) found in the optimization pre-

sented in Table 15-2.

Live Hogs was the only market that was substantially profitable in both sam-

ples. A number of markets (e.g., the Deutschemark and Japanese Yen) showed

strong profitability in-sample that was not evident out-of-sample. On the long side,
the NYFE and Unleaded Gasoline were profitable in both samples. This could eas-

ily be a statistical artifact since, in-sample, a large number of markets had prof-
itable performance on the long side.

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