Way of the turtle

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Way of the Turtle

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MAR Ratio as Entry Threshold (std. dev.) Varies
0.0
4.0
Entry Threshold (std. dev.)
3.9
3.
8
3.7
3.
6
3.
5
3.
4
3.
2
3.1
3.
0
2.
9
2.8
2.7
2.6
2.
5
2.4
2.3
2.
2
2.
1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
1.3
1.2
1.1
1.0
3.
3
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
Figure 11-1
Change in MAR Ratio as the Entry Threshold Varies
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trading to much greater drawdowns than a 2.4-standard deviation
entry threshold would have provided. To give you an idea how great
that difference could have been, consider that the test at 2.4 makes
8 times as much money over the 10.5-year test with the same draw-
down as the test at 3.0 does, with returns of 54.5 percent versus 28.2
percent for the test with an entry threshold of 3.0.
Not optimizing means leaving things to chance through igno-
rance. Having seen the effects of changes to this parameter, we
now have a much greater understanding of the performance ram-
ifications of the entry threshold parameter and how the results
are sensitive to that parameter. We know that if the channel
width is too narrow, you get too many trades, and that hurts per-
formance; if it is too wide, you have given up too much of the
trend while waiting to enter, and that also hurts performance.
Not doing this research because you were afraid of over opti-
mizing or curve fitting would have deprived you of a good deal
of useful knowledge that could materially improve your trading
results and give you other ideas for better systems in the future.
The following sections introduce you to a few more parameters,
which you can see also have a mountain or hill shape when they
are varied.