I do not understand your second question, but as to the first, the god of statistics can treat you right because he counts the number of trades that you entered with that sytem.

When you roll the dice, your chance to suffer three losses in a row is much higher when you roll them 30 times, than when you roll them only 3 times. Same for trading. I have no reference link, but can find an introduction book to statistics in the links page of the manual.

Thanks jcl.

Some things may be finally sinking in. Your dice example helps, and should probably be added into the manual.

I'm still not understanding a few things, though...

Why is the 0 profit square root rule used rather than the + profit rule? Because the square root rule is more pessimistic?

If the Test period was, f.i., 3 years, why isn't the square root rule already accounted for over an equivalent Trade period, and kicks in after that?

Shouldn't Test match Trade? IOW, if I'm planning to take out Income, shouldn't the Test be run with those removals? This would change DDs, etc.

Let's say I have $15k to risk on all this. Is it more risky to run, say, Z12 on one account with the entire $15k? Or 3 Z12's on 3 accounts with $5k each?

Re. the 2nd question, all of this applies to WFO and such Trained and Tested strategies, correct? Aren't Z4/5 by nature different and all profit removable?

Thanks.

The 0 profit square root rule is used because it errs on the pessimistic side and requires no further assumptions about the system. Otherwise one had to calculate the system expectancy, which however in turn depends on DD, so we would get a loop of iterations that does not always converge.

The square root rule is nowhere built in in Zorro, except for drawdown normalization. Aside of that it's just a recommendation in the manual. What you do with it is completely up to you and your script. The same goes for reinvesting, taking out profit etc.

One Z12 with $15K or 3 Z12s with $5K are the same risk.

Z4/Z5 are indeed exceptions insofar as the drawdown is limited by the price cap. It won't grow with the square root of time. So you could theoretically remove all profits. Still, there is no hard limit in the other direction, so it's more safe to treat Z4/Z5 like any other system.

Thanks jcl.

You've mentioned time again. Please clarify: Whether the doubling occurs over 2 months or over 2 years, the same 41% must remain? Or does time enter the calculation in some way that makes the % different for one or the other?

Still don't understand why it's OK to Test one way and Trade differently. That seems to violate a fundamental rule of Testing, doesn't it?

For the same level of risk, Z4/Z5 seem to have a clear advantage in terms of profit removal, a.k.a. income, true?

Thanks.

Remember that when we mostly start testing out a system we don't test with a starting capital. We usually run the backtest with flat lots and the capital requirement suggestion after is based on the normalized drawdown and largest margin requirement during the testing period. To simulate what would have happened if you had started out with a fixed capital with re-investment, you can program in this

Where the 250 is the capital you would have started with.

Thanks liftoff.

Sorry - I evidently haven't explained very well. Since Zorro's focus is on "enabling a large audience to get a regular income through automated trading", I've been trying to understand how that regular income really works. The Performance Report shows Return and Capital Required, but doesn't cover removing profits for Income (that's now dealt with elsewhere in the manual).

Among other quandries, there's this:

At the forest level, if Zorro's focus is Income, shouldn't Testing be aligned with that, and be done with some profits regularly removed (which would affect subsequent drawdowns, etc.)?

At the trees level, shouldn't the Testing and Performance Report be structured for that? Shouldn't it include the strategy's estimated Monthly (or whatever timeframe) Income that doesn't cause margin call, doesn't violate the square root rule, lives within the calculated Capital Required, etc.?

Thanks.

I see what you mean. The way it is advertised and the way one subsequently learns to use it are completely different. I doubt there is any strategy on here that can bring in regular income.

I think it's in fact possible with some strategies to produce a monthly income on button press - but that's not Zorro's focus.

Zorro's focus is to _enable_ you to achieve a regular income by _understanding_ to develop and use strategies. It helps you to accumulate the money, but does not tell you what to do with it.

You can of course program a script that does all this for you, but that's not a part of the Z systems or of the performance report. The report is about the strategy, not about your bank account. That's why figures like "your monthly salary by square root withdrawal" don't appear on the report. If you think you need that, just calculate and add it.

I think it's in fact possible with some strategies to produce a monthly income on button press - but that's not Zorro's focus.
I completely agree on this part.
But does it also mean the Z systems have not being designed with regular income in mind?

If you mean a monthly regular income: in my opinion this requires a system that is not purely mechanical, but also uses some fundamental information. But that's just my personal opinion, it's no hard fact. Z1-Z3 are mechanical systems and thus have inherent long drawdown periods, much longer than a month. Only the newer Z4 and Z5 systems, or similar systems, can really produce a monthly regular income. But still, they just trade, and leave it up to you to withdraw or reinvest the profit wisely.