Trading System

Question 1

System MAR

Answer 1

The ratio of annual percentage net gain to the maximum percentage drawdown

Question 2

Trade MAR

Answer 2

The ratio of annual percentage net gain to the maximum percentage drawdown in a trade

Question 3

Perfect profit correlation

Answer 3

The correlation of a trading system to an ideal perfect system

Question 4

To avoid curve-fitting

Answer 4

1. Perform the optimization on only a portion of the data - in-sample (IS) data
2. Test the results on the remaining data - out-of-sample (OOS) data

Question 5

Walk forward optimization

Answer 5

1. Build the system using IS data
2. Test it using OOS data and then optimize the system
3. Perform another test using the next OOS data and so on

Question 6

• Profit factor
• Outlier-adjusted profit to loss
• Payoff ratio

Answer 6

• Total profit / total loss
• A profit factor adjusted for the largest profit
• Average winning trade / average losing trade

Question 7

Martingale betting system

Answer 7

A situation where the bet size can be changed but the odds are relatively the same

Question 8

Risk of Ruin formula (ROR)

Answer 8

• ROR = (1 - ta) / (1 + ta))^cu
• ta is the trading advantage (percent wins minus percent losses)
• cu is the number of trading units, shares, or contracts

Question 9

Percentage of Capital per Trade (PCT)

Answer 9

• PCT = ([A + 1) * p] - 1) / A
• A is the average payoff ratio
• p is the percentage of wins

Question 10

Optimal f formula

Answer 10

Optimal f % = (% of wins * (profit factor + 1) - 1)/ profit factor

Question 11

Money point stop

Answer 11

The maximum amount that can be lost from a maximum unrealized profit level