Comprehensive assessment of the suitability of a mechanical trading system for real trading in the Forex market

Kryukov P.A., Kryukova V.V.
г. Kemerovo

The generalized indicator of point estimation of the suitability of the mechanical trading system for the real trading, the threshold values of which determine its gradation: suitable, limitedly suitable, unsuitable, is considered. The structure of the indicator includes the indicators of the strategy efficiency, obtained at the stage of trading system development.

Introduction

In the scientific literature there are no specific proposals for the use of a generalized assessment of the suitability of the mechanical trading system (MTS) at the stage of development. In our opinion, such an assessment is necessary, it will improve the effectiveness of developed trading strategies at the stage of operation MTS.

It seems that the evaluation of the suitability of the MTS should reflect the generality of the optimization results, forward testing and assessment of the significance of the trading strategy (TS). The result of this assessment is the assignment of MTS to a certain category: suitable, limited suitable, unsuitable. The whole set of indicators used for generalized assessment can be divided into groups according to the specified stages of MTS development.

Obviously, a suitable MTS must be effective. To evaluate the effectiveness, indicators derived from the trading terminal are used. An effective strategy must be sustainable. The stability of the trading system is understood in three senses: profit on a wide range of variables, profit on a wide range of markets, profit on a wide range of market conditions (upward, downward, sideways trend). In the case when trading is carried out with one instrument (in one market), we will understand stability as achievement of the average annual profit not less than 15% (average value of the bank deposit) in a wide range of market conditions (rising, falling, sideways trend) and the TS ability to adjust to new market conditions as a result of optimization without updating parameters (coefficients) of the market model.

Description of the suitability index structure

Комплексный показатель пригодности — сумма баллов, полученных по каждому показателю эффективности стратегии за длительный период виртуальной торговли. Пороговые значения показателя определяют его градации: МТС пригодна, ограниченно пригодна, непригодна к реальной торговле. Набор, пороги и максимальное значение показателей в баллах приведены в табл. 1. Используются показатели эффективности стратегии:

— profitability (ratio of total profit to total loss) as a percentage; the ratio illustrates the profitability of the strategy for a specific period (year);
— number of transactions as a percentage reflects the ratio of all deals for a certain period compared with the total number of trading days in the year (252), that is, the share of actual transactions from the number of possible transactions at the rate of 1 deal per day; this indicator characterizes the uniformity of transactions in time and activity of TC;
— win rate characterizes the share of winning from the total number of transactions;
— maximum drawdown in percent — наибольший убыток от локального максимума в процентах от депозита, показатель риска;
— average annual profit in percent — это отношение чистой прибыли к сумме депозита за период (год);
— TC's ability to adjust to new market conditions as a result of optimization without updating the parameters (coefficients) of the market model;
— probability (significance) of the average profit/loss per trade in percent;
— upper limit of the confidence interval of the probability of a winning deal in percent — производительность МТС (процент прибыльных сделок).

Table 1. Values of the TC efficiency indicators in points

Composite index of MTS suitability for real trading is calculated by adding up points: балл прибавляется, если значение показателя не менее значения порога. В частности, способность к настройке оценивается так: да — 15 баллов, нет — 0 баллов. Пороговые значения показателей и оценка в баллах предложены автором (Крюковым П.А.), исходя из опыта торговли. Общая сумма баллов — 100.

Table 2. Gradations of suitability category

The proposed assessment of the suitability of the MTS allows you to quickly perform calculations, to obtain in a complex of many indicators of generalizing information and on the basis of this information to make a reasoned conclusion about the possibility of using the TS in the real trade.

Comprehensive assessment of MTS for the EURUSD currency pair

With the help of the introduced indicator the assessment of suitability MTS for the EURUSD tool. В МТС реализована торговая стратегия, формальной основой которой является статистическая модель анализа и прогнозирования динамики валютного курса — индикатора вероятностей восходящий/нисходящий тренд . Используются результаты тестирования за последний год ценовой истории (1.06.2010 – 1.07.2011 г.г.). Балльная оценка указанной МТС представлена в табл. 3.

Table 3. MTS point estimate for the EURUSD currency pair

Conclusions

Оценка МТС показала высокий рейтинг — 85 баллов. Торговая система пригодна к реальной торговле на валютном рынке FOREX.

The proposed indicator of complex assessment is universal, can be used for any trading system, implements the possibility of assessing the suitability at the stage of development of MTS, which ultimately contributes to the effectiveness of the real trading in the future.