## Optimization

#### Backtest

• = IS = In Sample Data
• Stage 1: 2015-2018, Stage 2: 2016-2019, ...
• Use 4 stages with each different years for each stage (more stages mean less trades per stage and therefore less significance)
• In order to reach 90% confidence in Power Analyses you will need (source)
•   500 trades for a system with 20% edge
• 2.200 trades for a system with 10% edge
• 8.000 trades for a system with 5% edge

#### Walk Forward Analyses (WFA)

• = OOS = Out Of Sample Data
• Stage 1: 2019-2019, Stage 2: 2020-2020, ...
• Ratio of IS to OOS 4:1

#### Parameter optimization

• Max number of parameters 3, to ensure not to overfit
• Use e.g. 10,20,...100 instead of 1, 2, 3, ...100

#### Monte-Carlo Test/Robustness

Ordered by correlation from Backtest to WFA by using Pearson (source)
• 0.701 CAGR/Max Drawdown
• CAGR = Compound Annual Growth Rate
• ((Equity final / Equity start) ^ (365/d)) -1
• Quite similar to Recovery Factor and Calmar Ratio
• Scales with position size
• 0.704 Recovery Factor
• Ratio of gained profit to maximum drawdown
• 0.722 Sharpe Ratio
• Ratio of the arithmetical mean profit for the position holding time to the standard deviation from it
• 0.728 Expected Payoff
• 0.729 Coefficient of Correlation, R, Pearson Correlation Coefficient, Linear Regression Model
• Measure distance from perfect line (Linear) to equity curve
• Return values between -1, +1
• Deviation: Coefficient of Determinatiopn, R² (is just a square of above, return values between 0 and +1)
• Needs fixed position size, in order to compare with a linear line
• 0.736 Standard Profit Factor (sum of profits/sum of losses)
• Scales with position size
• 0.745 Normalized Profit Factor (sum of profits/sum of losses)
• Needs fixed position size, so all trades got equal influence
• 0.745 CAGR/Mean Drawdown
• Store drawdown of every candle in an array and find the average
• Scales with position size
• RINA Index
• RINA Index = (Net Profit – Net Profit in Outliers)/(Average Drawdown*Percent Time in the Market)
• Return values over 200 are good
• Kelly Criterion