StockFetcher Forums · Backtesting Support · What's a Good Risk:Reward Ratio?<< >>Post Follow-up
mousedoc
4 posts
msg #36126
Ignore mousedoc
5/28/2005 12:25:46 AM

I've been trying various filters and trade management strategies in the backtesting. The best Risk:Reward ratio I've come up with is 2.51 with 120 trades over 123 days. Most are in the 1.2-1.9 range for 1 1/2 years. A poster in another forum suggested using the following for comparing backtesting results:

risk:reward X number of trades = rating

Any thoughts?




mousedoc
4 posts
msg #36127
Ignore mousedoc
5/28/2005 12:28:40 AM

Another thought for comparing strategies is the include the Win:Loss ratio in the formula. Seems like a high win/loss and high risk/reward is desirable, but I don't seem to be able to come up with a strategy that is better than roughly 60/40 in backtesting.

Approach Information
Approach Name: New stock filter
Test started on 12/31/2003 ended on 06/29/2004, covering 123 days
Filter used:
New stock filter (saved filter)

Trade Statistics
There were 465 total stocks entered. Of those, 460 or 98.92% were complete and 5 or 1.08% were open.
Of the 460 completed trades, 236 trades or 51.30%resulted in a net gain.
Your average net change for completed trades was: 0.14%.
The average draw down of your approach was: -1.15%.
The average max profit of your approach was: 1.30%
The Risk/Reward ratio for this approach is: 1.23
Annualized Return on Investment (ROI): 33.52%, the ROI of ^SPX was: 4.81%.

Exit Statistics
Stop Loss was triggered 0 times or 0.00% of the time.
Stop Profit was triggered 0 times or 0.00% of the time.
Trailing Stop Loss was triggered 2 times or 0.43% of the time.
You held for the maximum period of time (50 days) 0 times or 0.00% of the time.
An exit trigger was executed 458 times or 99.57% of the time.

Statistics By Holding Period
 Completed2 day chg5 day chg10 day chg25 day chg40 day chg
Winners:236240264263258210
Losers:217221197200205255
Win/Loss Ratio:1.09:11.09:11.34:11.31:11.26:10.82:1
Net Change:0.14%0.17%0.63%0.62%0.68%0.07%

Statistics By Variable: Match Price
 <20<40<60<80<100<120<140<160<180<200
Completed18:2198:9879:6224:2211:123:21:01:01:0-
2 day chg21:1993:10790:5419:2710:134:11:01:01:0-
5 day chg22:16113:9083:6127:1813:103:21:01:01:0-
10 day chg26:14111:9283:6126:2015:81:31:00:10:1-
25 day chg24:16111:9382:6226:1813:102:30:10:10:1-
40 day chg19:2194:11068:7620:269:140:50:10:10:1-

Statistics By Variable: Average Volume
 <2.5M<5.0M<7.5M<10.0M<12.5M<15.0M<17.5M<20.0M<22.5M<25.0M
Completed211:19617:124:41:00:13:00:3-0:1-
2 day chg214:20218:114:30:11:02:11:2-0:1-
5 day chg236:17922:74:41:00:11:20:3-0:1-
10 day chg235:18220:95:30:10:12:11:2-0:1-
25 day chg233:18418:114:41:00:12:10:3-0:1-
40 day chg192:22714:153:50:10:11:20:3-0:1-



mousedoc
4 posts
msg #36128
Ignore mousedoc
5/28/2005 12:30:03 AM

Oops. Posted wrong backtest. Here's the right one.

Approach Information
Approach Name: New stock filter
Test started on 12/31/2003 ended on 06/29/2004, covering 123 days
Filter used:
New stock filter (saved filter)

Trade Statistics
There were 120 total stocks entered. Of those, 110 or 91.67% were complete and 10 or 8.33% were open.
Of the 110 completed trades, 67 trades or 60.91%resulted in a net gain.
Your average net change for completed trades was: 2.14%.
The average draw down of your approach was: -3.48%.
The average max profit of your approach was: 5.89%
The Risk/Reward ratio for this approach is: 2.51
Annualized Return on Investment (ROI): 53.34%, the ROI of ^SPX was: 4.81%.

Exit Statistics
Stop Loss was triggered 3 times or 2.73% of the time.
Stop Profit was triggered 1 times or 0.91% of the time.
Trailing Stop Loss was triggered 4 times or 3.64% of the time.
You held for the maximum period of time (50 days) 0 times or 0.00% of the time.
An exit trigger was executed 102 times or 92.73% of the time.

Statistics By Holding Period
 Completed2 day chg5 day chg10 day chg25 day chg40 day chg
Winners:676268777961
Losers:425651434159
Win/Loss Ratio:1.59:11.11:11.33:11.79:11.93:11.03:1
Net Change:2.14%0.43%1.78%2.14%2.70%2.57%

Statistics By Variable: Match Price
 <20<40<60<80<100<120<140<160<180<200
Completed6:127:1322:168:74:30:1--0:1-
2 day chg7:221:2324:166:103:40:1--1:0-
5 day chg7:127:1920:209:74:30:1--1:0-
10 day chg8:131:1525:159:74:30:1--0:1-
25 day chg7:229:1725:1512:45:21:0--0:1-
40 day chg6:325:2120:208:82:50:1--0:1-

Statistics By Variable: Average Volume
 <2.0M<4.0M<6.0M<8.0M<10.0M<12.0M<14.0M<16.0M<18.0M<20.0M
Completed55:397:23:11:0--1:0---
2 day chg51:509:21:21:0--0:10:1--
5 day chg55:4611:01:31:0--0:10:1--
10 day chg62:409:23:11:0--1:01:0--
25 day chg65:379:24:01:0--0:10:1--
40 day chg52:506:53:10:1--0:10:1--



corsino
259 posts
msg #36129
Ignore corsino
5/28/2005 1:37:16 AM

mousedoc
I think that your risk/reward ratio of 2.51 for that long a holding period (50 days) and 120 trades is very good.
I typically don't backtest for more than a 5 day holding because usually results deteriorate the longer the holding period. It seems that most filters are short-term in nature, probably because they depend on technical factors rather than on fundamentals.
But the actual result of any filter is going to depend a great deal on the trader anyway, since it's not likely that all stocks are going to be bought. I think the main use of filters is to get a list of stocks to consider.



optionmasters
17 posts
msg #36300
Ignore optionmasters
6/12/2005 4:55:53 PM

Hey mousedoc I am interested in the filter you are using along with the entry criteria and target profit and stop loss levels. I have a equity curve model in excel I would be interested in applying my money management algorithm to this filter if you wouldnt mind sharing.

Please contact me Brent701@aol.com


mousedoc
4 posts
msg #36339
Ignore mousedoc
6/15/2005 2:47:21 AM

optionsmaster,

I'd like to see your spreadsheet (mousedoc@msn.com). The following is my filter and the backtesting criteria. Since the max backtesting period has been reduced to 6 months the Reward/Risk ratio has been lower, in the 1.3-2 range, with the worst win percentage 50/50. Most have been about 60/40. Every 6 month period testable within the available date range (using the end of each calendar quarter as the start) has made money. One at 13% but most 30%-40%. Following some option plays on a filtered subset of this scan has produced extraordinary results over the last few months. Wish I'd been using real money!

Entry Filter
EMA(5) crossed above EMA(20) within 1 day
and EMA(20) is above EMA(50)
and EMA(50) is above EMA(200)
and MACD fast line(5,10) crossed above MACD slow line(5,10) within last 3 days
and Momentum(10) is above 0
and Momentum(10) is greater than Momentum(10) 2 days ago
and price is greater than 10
and price is greater than price 3 days ago
and stock is optionable

Basic Setup
Approach Type: Long

Exit Setup
Stop Loss: 10%
Profit Stop: 20%
Trailing Stop Loss: 10%
Minimum Holding Days: 10
Maximum holding days: 50
Exit Trigger #1: EMA(5) crossed below EMA(10)
Exit Trigger #2: set{trigp,max(close,open)*.94}
trigp is less than price

Advanced Options
Selection Method: select by volume descending
Entry Price: open
Conditional Entry: No
Exit Price: open
Maximum Trades Per Day: 5
Maximum Open Positions: 10



traderblues
195 posts
msg #36785
Ignore traderblues
7/8/2005 7:49:47 AM

All,

I've backtested a system that doesn't give that many opportunities, but gives very good returns. I tested it for 5 different 6-month periods, and came up with the following results:

Period Number of buys Winning % Reward:Risk
9/1/02-3/1/03 11 60 3.60
3/1/03-9/1/03 34 91 20.61
9/1/03-3/1/04 43 82 8.74
3/1/04-9/1/04 43 76 4.37
9/1/04-3/1/05 49 70 4.73

I want to do some more checking, with some actual case testing on this before I pass along the details, but I will say it uses ADX as a buy signal, and holds stocks for 10 day periods.

Brian


traderblues
195 posts
msg #36786
Ignore traderblues
7/8/2005 7:56:40 AM

Sorry about the formatting problems with that last post. I'll try it again.

Period--------Number of Buys--Winning%--Reward:Risk
9/1/02-3/1/03------11-------------60------------3.60
3/1/03-9/1/03------34-------------91-----------20.61
9/1/03-3/1/04------43-------------82------------8.74
3/1/04-9/1/04------43-------------76------------4.37
9/1/04-3/1/05------49-------------70------------4.73

Brian


mdiaconu
3 posts
msg #37115
Ignore mdiaconu
7/27/2005 7:09:38 PM

Hi Brian,
Could you share your filter now?


StockFetcher Forums · Backtesting Support · What's a Good Risk:Reward Ratio?<< >>Post Follow-up

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