9.1) The Importance of Choosing Robust Performance Metrics / Criteria in Trading Optimizations

Choosing suitable performance metrics/criteria for effective selection of algorithmic trading parameters is essential for backtesting and trading optimizations.

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Because the choice of performance criteria will impact which parameters you choose to trade with, getting this right is almost as important as the rules of your trading system itself.

This video covers the two major characteristics that are needed in your performance metric: mechanisms to measure both upside ‘reward’ and downside ‘risk’.

It also covers the importance of matching your position sizing methodology to your chosen performance metric. Get this wrong and your results will be misleading.

In this and the next episode we will cover the following metrics:

1. Profit Factor (Standard)
2. Normalized Profit Factor (Modified)
3. CAGR / Max Drawdown
4. CAGR / Mean Drawdown
5. r (Coefficient of Correlation)
6. R-Squared (Coefficient of Determination)

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#AlgorithmicTrading, #PerformanceMetrics, #Optimization, #ParameterSelection, #PerformanceCriteria, #Backtest, #Reward, #Risk, #PositionSize, #ProfitFactor, #CAGR, #MaxDrawdown, #MeanDrawdown, #AverageDrawdown, #r, #CoefficientOfCorrelation, #R-Squared, #CoefficientOfDetermination, #AlgoTrading, #Darwinex, #FX, #Forex, #Trading

[nigelmdletsshe]

Mr Tinsley please consider writing a book. This knowledge is worth more than Gold.

[xLeonardo]

I was thinking with myself, why doesn't people use the median instead of the mean for eliminating outliers purposes?