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There are many Objective functions that C2 shows…some are not well known…like the Calamar Ratio while others are widely known like the Percentage of winning trades… By clicking upon the Statistics tab there are an overwhelming number for each system.
This week I went through the writings of someone who regularly made a fortune over 50 years ago to see what they used back then. He never used any of the formulas here on C2.
I think that this may have had an impact upon his success. The problem with using something like the Sharpe ratio if you are a trade leader is that you are assuming the past will be the same as the future. You are counting upon a system to be the same as in the past.
A wonderful example of this are the recent comments about Conservprofit. Some old timers felt like fools when they took significant losses. This was because they focused upon percentage of winning trades as an important objective function.
Is trading like riding a bicycle? If you focus upon one meter in front of you bike or one thousand meters in front, you are liable to have problems. You need to have proper focus. What is your favorite Objective Function and why?
When choosing systems to follow I pay attention to the following things:
markets / instruments traded and leverage used in these markets (the higher the instrument / market risk the lower the leverage I want to see. This is highly individual but you´ll get a feeling for what is right after a while)
consistency at risk control (trade record)
maximum single trade loss / drawdown in conjunction with trade frequency and leverage (see the bigger picture)
ratio of normal take profits to normal closed losses (generally I look for above 1.5)
ratio of normal TP to conservatively expected slippage and commissions (don´t want to have more than 10% cost per trade so scalping systems usually get filtered out)
maximum system drawdown (I´m ok with up to 40% if that drawdown only occured once but that´s personal preference. Ask yourself what you deem to be ok for a system)
annualized compound return (I´m looking for 20-60% p.a. systems and want a good mix in my portfolio.)
calmar ratio (above 1)
length of drawdown periods (very important because long but small drawdowns can be as exhausting as steep and short drawdowns. Doesn´t mean that a system with long drawdowns is bad but there is a personal limit of what I would accept timewise. You should define your limit yourself.)
style of drawdowns (I don´t want sudden and steep drawdowns because then I possibly can´t react in time to cut losses)
track record of at least 12 months
And I use the winning rate as an indicator of high risk grid / martingale systems.(winning rates over 80% are a warning sign for me to inspect the system even closer and 90%+ are no go´s)
No single best objective function, at least not for evaluating short-lived strategies like this. I generally like using a MAR greater than unity, preferably significantly greater. What’s reported on C2 isn’t exactly Calmar (strictly, a 3 year period), more of a MAR (lifetime period). I don’t mind significant drawdowns when I know the expected returns can readily recover from them. Take the S&P 500, everyone’s beloved benchmark… long term CAGR something in the high single digits, long term max DD around 50%, giving a very low MAR of ~0.2 or so. Hence it has little ability to recover from its drawdowns. From the S&P 500’s adjusted close peak above 1500 back in 2000, it took seven years to hit it again, and then a >50% drawdown in 2009 before clawing its way back up to cross out of the drawdown again in mid-2013. When you look at it that way, we’ve only really been on a serious bull run since 2013, just coming up on four years, not so very long. A good MAR needs a decent period of time to be realistic, however: not the very short periods available for 95% of the interesting strategies on C2. Anyway, MAR is a start for me. @Aaa123’s compilation seems quite useful.
