Test results

I have a system that can be tweaked to improve the sharpe ratio and ulcer index but it reduces the profit. Which of these is best to trade, the one with the lower sharpe ratio but higher profit or the one with the better figures but lower profit?

Here's the first one...

Gross win/loss $21223 / -$9196 (212264 pips)
Average profit $2123/year, $177/month, $8/day
Max drawdown -$819 (MAE -$2552)
Max down time 88 weeks from May 2006
Largest margin $202
Trade volume $454983 ($80320/year)
Capital required $1020

Number of trades 487 (85/year)
Percent winning 42%
Max win/loss $509 / -$258
Avg trade profit $25 (+$105 / -$32)
Avg trade bars 73 (+131 / -32)
Max trade bars 457 (94 weeks)
Time in market 2037%
Max open trades 46
Max win/loss streak 15 / 19

Annual return 208%
Profit factor 2.31 (PRR 2.03)
Sharpe ratio 1.02
Kelly criterion 0.49
OptimalF .040
Ulcer index 9%
Prediction error 24%

And here's the second with the tweak added...


Gross win/loss $14793 / -$6077 (220114 pips)
Average profit $1539/year, $128/month, $6/day
Max drawdown -$824 (MAE -$1243)
Max down time 61 weeks from Oct 2008
Largest margin $153
Trade volume $454983 ($80320/year)
Capital required $977

Number of trades 487 (85/year)
Percent winning 53%
Max win/loss $509 / -$258
Avg trade profit $18 (+$57 / -$27)
Avg trade bars 38 (+54 / -20)
Max trade bars 378 (78 weeks)
Time in market 1068%
Max open trades 34
Max win/loss streak 26 / 22

Annual return 158%
Profit factor 2.43 (PRR 2.14)
Sharpe ratio 1.24
Kelly criterion 0.97
OptimalF .044
Ulcer index 5%
Prediction error 22%

And to confuse things I just did this test with a different tweak removed...

Gross win/loss $37301 / -$15124 (590849 pips)
Average profit $3915/year, $326/month, $15/day
Max drawdown -$1552 (MAE -$2554)
Max down time 62 weeks from May 2006
Largest margin $316
Trade volume $1183894 ($208998/year)
Capital required $1868

Number of trades 1284 (226/year)
Percent winning 52%
Max win/loss $525 / -$258
Avg trade profit $17 (+$56 / -$24)
Avg trade bars 32 (+48 / -15)
Max trade bars 382 (79 weeks)
Time in market 2390%
Max open trades 71
Max win/loss streak 40 / 63

Annual return 210%
Profit factor 2.47 (PRR 2.28)
Sharpe ratio 1.37
Kelly criterion 0.87
OptimalF .037
Ulcer index 5%
Prediction error 13%

Go for a high profit factor and a high Sharpe ratio. The annual return is not very relevant, as it depends on random order of trades.

So a higher sharpe ratio is more desirable because this reflects less deviation of returns (a smoother equity curve?)