Posted By: boatman
Optimum length of WFO training cycles - 01/06/15 13:37
I've been experimenting with various lengths of WFO training cycles and am getting some interesting results. I read in Pardo's book that the length of the training cycle should be considered one of the strategy's optimization parameters. This makes intuitive sense, since different strategies exploit different inefficiencies that change in different ways.
The interesting thing about the results I'm getting is that there is no clear winner in terms of all performance metrics. For example, the cycle length that results in the highest annual return is not the one that results in the highest Sharpe ratio. The one that results in the lowest capital requirement is different again.
I should also note that I am confident in the statistical significance of all the Walk Forwards I have tested, based on the number of trades in each test cycle.
I'm wondering which performance metric others would choose? I am tempted to go for a Sharpe ratio of 3.17 over 3.01, even though the annual return is about 40% less for the former. Then again, I am not sure about Sharpe ratio, given that it assumes a normal distribution and it is simple to show using Excel that the strategy's trade results are not normally distributed. In this case, it would seem to make more sense to consider a trade off between the highest annual return and the lowest capital requirement.
What would others do in this situation???
The interesting thing about the results I'm getting is that there is no clear winner in terms of all performance metrics. For example, the cycle length that results in the highest annual return is not the one that results in the highest Sharpe ratio. The one that results in the lowest capital requirement is different again.
I should also note that I am confident in the statistical significance of all the Walk Forwards I have tested, based on the number of trades in each test cycle.
I'm wondering which performance metric others would choose? I am tempted to go for a Sharpe ratio of 3.17 over 3.01, even though the annual return is about 40% less for the former. Then again, I am not sure about Sharpe ratio, given that it assumes a normal distribution and it is simple to show using Excel that the strategy's trade results are not normally distributed. In this case, it would seem to make more sense to consider a trade off between the highest annual return and the lowest capital requirement.
What would others do in this situation???