Back Tester : Differences in Optimization Parameters ?

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HI to one and all,

I'm confused (no news to many of you! (< 8) about the varying results obtained utilizing the Optimization Parameters. Why & how some results that have the maximum 'Profit Factor' doesn't have the biggest Payout, or Balance etc and have been wondering about how this could be so? My reckoning of it is that different Input Parameters obviously don't follow the same sequence of orders and transactions. I can understand how and why this would achieve varying results, but often their are VERY significant differences that make the results dubious to me. I also understand that there are a number of inherent factors and limitations in the Back Tester that don't exist in either forward testing or live trading. But I'm still wondering about the definitive definition and the different factors of these.

I haven't been able to figure out what the 'Expected PayOff' is at all. Its units, or meaning and what it represents and how it co-relates to the other Optimization Parameters

One of the 'Optimization Parameters' says that it is 'Maximal DrawDown'. Is this a misnomer and actually is optimizing for 'Minimal DrawDown'? If not, why would anyone want to optimize FOR the 'Maximum DrawDown' when this is a detrimental outcome that is generally avoided as much as possible?

Of course the ultimate question about the 'Optimization Factors' and the purpose of analysis tools such as the Back/Strategy tester is: which Optimization Factor returns the highest profit and makes the most money?

 

See this: What the Numbers in the Expert Testing Report Mean

  • Gross profit, the summed up profit for all profitable transactions;

  • Gross loss, the summed up loss for all unprofitable trasnactions;

Profit factor, shows the ratio between gross profit and gross loss:

ProfitFactor = GrossProfit / GrossLoss

Total net profit, shows the difference between gross profit and gross loss:

TotalNetProfit = GrossProfit - GrossLoss


Expected Payoff = TotalNetProfit / TotalTrades






 
1005phillip:

See this: What the Numbers in the Expert Testing Report Mean

Expected Payoff = TotalNetProfit / TotalTrades

Hi Phillip.

I figured out that the significant difference in the results of the profit factor is widely varying because of the different number of trades associated with them. But was still confused about the 'Expected Payoff'

Thanks once more for the info and the reference.

 

Profit factor, shows the ratio between gross profit and gross loss :

ProfitFactor = GrossProfit / GrossLoss

I figured that the number of trades was a factor in this, but apparently not, except perhaps as an influencing overall factor. The right idea and factor, but the wrong formula as is below:

. .

Expected Payoff = TotalNetProfit / TotalTrades

Expected payoff, to be calculated as follows:

         "Expected Payoff = (ProfitTrades / TotalTrades) * (GrossProfit / ProfitTrades) - (LossTrades / TotalTrades) * (GrossLoss / LossTrades)"

 I'm not that good of a mathematician that I can synthesize this formula in my head readily, so I'll use your abridged version and assess this as  'relative' factors'  and like the net profit and tha profit factor that the higher the number the better. The Draw Down $ and %,  which are exactly what they are as opposed to being a (complex) formula, the lower the better.
 
The link on the the meaning of the terms, factors and results in he strategy tester uses the term 'Balance' in numerous places, but does not actually give a description of what optimizing for 'Balance' actually is. I've been utilizing it with the connotation that I have of it, but this does not means it is what I think it may be. I don't even have a clear enough idea of this that I could describe what this is.
 
The link on the the meaning of the terms, factors and results in he strategy tester uses the term 'Balance' in numerous places, but does not actually give a description of what optimizing for 'Balance' actually is. I've been taking this as the 'Account Balance', But this does not mean this is what it is?
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