The Subjective Function (Part 4)

I’m in the process of trying to determine the subjective function, as defined in http://www.optionfanatic.com/2012/10/05/the-subjective-function-part-1.  In http://www.optionfanatic.com/2012/10/09/the-subjective-function-part-3, I showed three inserts to help us in this determination.  I will analyze those today.

Let me start by emphasizing the need to study relative differences in net profit, drawdown, and other details between the three inserts.  If I focus on absolutes then I will be disappointed.  The one and only goal of this study is to determine which I prefer most.

In looking at the equity curves, my first observation is that they are all upward sloping to the right.  I should hope so.  Each insert corresponds to the system that performed best on a different metric.  Whichever curve I like the best corresponds to the metric I will use to evaluate systems.  This will be the subjective function.  Since each of these systems is the best in some respect, I am glad to see they are all profitable.

Equity curves #1 and #2 have many discernible plateau (horizontal) regions as opposed to #3, which seems to have more incremental changes.  This corresponds to the total number of trades.  Inserts #1, #2, and #3 have 57, 37, and 399 total trades, respectively.  On this metric alone, I prefer a system that trades more because that means more opportunity for profit.

Drawdown curves #1 and #2 have a much smaller blue area than #3.  This means #3 spends more time in drawdown and less time at new equity highs.  I really like new equity highs because they make me feel like a successful trader.  The broad market does not make all-time highs very often.

Equity curve #1 is lower now than it was around the beginning of 2009.  This seems like a negative.  However, each of these systems goes into drawdown periodically and curve #1 did hit a new high roughly 1+ centimeters ago (on my screen), which is only a couple fractions of a centimeter more than the other two.  Curve #1 just happens to be in greater drawdown (-0.59%) than the other two but by no means it this drawdown remarkable.  This observation may be disregarded.

I will continue this analysis in my next post.