The Value of SQN When Backtesting In ThinkOrSwim

[Stockbat]

My intention is to observe the strategy and place as many trades as possible using it. That way it will give me confidence of using it live, be it placing the trades manually or attended trades. I read somewhere (probably a suggestion from Mobius) that one needs to see how the strategy performs at least for 3-4 months, or more than 5000 trades.

I am currently testing a strategy based on John Ehlers Forward Reverse EMA. Your thoughts/inputs/contribution on this simple strategy will be appreciated. (Paper trading, /MNQ ticker, 5min time frame)

http://tos.mx/grN3okq
I might be wrong but in the limited time I observed this, it does not seem to be repainting after the signal.

cheers

 

[mc01439]

@Stockbat Below are the 20 year Daily Results I achieved in a back test.

I use the calculations below to help me decide if I will continue with the testing and possibly move to live trading. Have used since 2009.

Please keep in mind the SQN does not guarantee profitable results, you still have greed, fear and other emotions to deal with. I keep a running total of the SQN for all my real money strategies.

Trade Count (Daily Chart)	247
Mean	$2.00
Stdv	$6.38
W/L %	59.51%
SQN (Systen Quality Number)	4.92
	SQN Table - reference "Super Trader" by Van K. Tharp page 180 table 4-1. Poor but tradable 1.6-1.9 Average 2.0-2.4 Good 2.5-2.9 Excellent 3.0-5.0 Superb 5.1-6.9 0.70 or better Holy Grail 7.0+

 

[Stockbat]

@Stockbat Does not look like it repaints. Below are the 20 year Daily Results I achieved in a back test.

I use the calculations below to help me decide if I will continue with the testing and possibly move to live trading. Have used since 2009.

Please keep in mind the SQN does not guarantee profitable results, you still have greed, fear and other emotions to deal with. I keep a running total of the SQN for all my real money strategies.

Trade Count (Daily Chart)	247
Mean	$2.00
Stdv	$6.38
W/L %	59.51%
SQN (Systen Quality Number)	4.92
	SQN Table - reference "Super Trader" by Van K. Tharp page 180 table 4-1. Poor but tradable 1.6-1.9 Average 2.0-2.4 Good 2.5-2.9 Excellent 3.0-5.0 Superb 5.1-6.9 0.70 or better Holy Grail 7.0+

Thanks a lot @mc01439 for your time and analysis. I took some trades on this strategy today on papertrade and it was profitable. However still long way to go. My algorithm is simple, keep the drawdown in limit, have small profit targets, flatten the trades when the loss is more than, say 100 USD.
So yes, I am having everything you suggested and read other good suggestions in this forum. One of the main motivations or use case for a bot is exactly what you mentioned. Emotions, fear, greed. When I see that candle sticks my mind wants me to take a trade but the indicator does the opposite and is more often correct.

Cheers.

PS: Just curious, I know probably no one will share any strategy with SQN's with Superb & Holy grail ratings, but are there any in that classification?

 

[mc01439]

Thanks a lot @mc01439 for your time and analysis. I took some trades on this strategy today on papertrade and it was profitable. However still long way to go. My algorithm is simple, keep the drawdown in limit, have small profit targets, flatten the trades when the loss is more than, say 100 USD.
So yes, I am having everything you suggested and read other good suggestions in this forum. One of the main motivations or use case for a bot is exactly what you mentioned. Emotions, fear, greed. When I see that candle sticks my mind wants me to take a trade but the indicator does the opposite and is more often correct.

Cheers.

PS: Just curious, I know probably no one will share any strategy with SQN's with Superb & Holy grail ratings, but are there any in that classification?

Yes there are - the highest SQN I have seen was 8.45.

 

[Stockbat]

Yes there are the highest SQN I have seen was 8.45.

@mc01439, thanks and good to know.
How is the SQN calculated, is it a proprietary tool? or is it something you have developed to evaluate the strategies?

Cheers

 

[mc01439]

@mc01439, thanks and good to know.
How is the SQN calculated, is it a proprietary tool? or is it something you have developed to evaluate the strategies?

Cheers

The excel code uses SQRT Count Stvd and Mean see below for the exact formula.

SQRT = Square Root
Count = Number of Trades
Stvd = Standard Deviation
Mean = Mean or Average

Please keep in mind the count is an important part of the calculation.

"A system with a ratio of 7.50 that generates one trade each year is not a Holy Grail system because it doesn't give you enough opportunities. However a system with a ratio of 5.0 that generates 20 trades per month is a Holy Grail system, partly because it gives you more opportunities to make money." - Van K. Tharp

Key word in that statement is opportunities, another key is position sizing. The 8.45 system referenced above makes an average of 10 trades a year but that meets my needs. May not meet the needs of others so there is much more to consider than the SQN. The SQN is just one piece to the puzzle.

 

[barbaros]

I use excel for everything.

=STDEV.P( ) is Standard Deviation ( ) are the cells used for the data.

=AVERAGE( ) is Mean or Average ( ) are the cells used for the data.

If you do not understand Excel I suggest you learn - I believe Excel is a key tool for back testing review.

It is =(SQRT(Count) * Mean) / Stdev according to Link

 

[mc01439]

It is =(SQRT(Count) * Mean) / Stdev according to Link

My mistake You are correct - thank you.