Frequency of trade is important

When building or evaluating trading systems benefit from the systems on which the trade is executed very frequently, usually skipped. The system on which trading is done frequently and has many advantages over less active systems, which seems to be more desirable because they have a better assessment of the relative parameters.

If the strategy is profitable, what are you selling it, the more money you have to do. I apologize for the repetition of seemingly obvious things, but you can not imagine how often I hear talk about the selection of systems with the highest level of "expectations" or higher "profit factor", without linking these indicators with the frequency of trading on the system. Simply put, our goal should be to show the greatest gains with the lowest risk and frequency of trade is essential to maximize profitability and manage our risk. Frequency of trading is an opportunity for profit. The more opportunities we can find, the more profit we should expect. For example, a strategy that has a very high profit factor - 4 (a factor of profit is equal to the total profits divided by total losses), can not be the same total return as a more intensive system with a profit equal to only a factor of 2. As a strategy to lower the profit factor is beneficial, and it is also has many features, it can easily be more fully profit rather than a system with much higher profit factor, but less frequently trade. Active system should give us greater confidence in the analysis of our test data. In addition to the increase in overall profits, is an active system gives us much more data for analysis in the performance of our preliminary study. If we have a long-term strategy following the trend, which shows only 50 transactions on the basis of more than five years of data, our results can not be almost as reliable as in the analysis of a more proactive strategy, which showed 1000 transactions on the same data. I am prepared to argue that a system with a large number of transactions is more likely to yield profitable results in the future, because our level of confidence depends on the number of examples in our testing.

Active systems should show better results and more smoothed curve of the assets. If we podkinem a coin only ten times, our chances of obtaining 50% and 50% of eagles reshek is not very high. However, if we podkinem coin a thousand times, our results are likely to be much closer to obtaining 50% and 50% of eagles reshek. The same logic applies to our trade in real time. If we have a large number of real transactions, our results should be closer to our expectations than if we had only one or two deals. The active system is close to our expectations are much more quickly than a system that trades infrequently. If we have 50 or more transactions a month with a good system, then we could reasonably expect to be profitable every month. However, if we have a system that produces only two or three transactions per month, our monthly results will be less predictable and inconsistent. Rarely trading system that can show profits for the year, but it would be unrealistic to expect that it will deliver profits every month, because the number of transactions per month will be very small.

Below is a brief summary:
1. Active systems provide more examples for testing, which makes test results more reliable.
2. Active systems have greater potential for profit and must make a greater total return over time.
3. Active systems should lead to a smoothed curve of the assets.

When setting its goals for the trading system, you should give considerable priority to the frequency of trade, even if it means that some of the usual parameters of the assessment system could be affected.

How to increase the frequency of trading:

1. Use faster settings to enter. The frequency of trade can usually be increased in the system through the use of more sensitive (usually shorter) parameters for the indicators that define inputs and outputs.

2. Be aggressive in taking profits. Faster exits to record profits, will tend to increase the number of transactions, but can reduce the average profit in the transaction. This change may prove worthy of attention and can significantly increase the total profits in the long run.

3. Traded on multiple markets. Diversification of markets should lead to more transactions and more consistent results.

4. Bidding for several systems. Adding a larger number of trading systems will increase the level of activity. Use as many systems, how much do you think might be appropriate, given the existing commercial capital and your ability to control them properly.

5. Bidding for several temporary formats. A system that works well in the daytime schedules, can also yield positive results for the hourly or weekly schedules. Do not make erroneous assumptions that must be used only one time scale.

A few final thoughts.
Downturns: you should keep in mind that when adjusting the system to become more active, almost always to increase the value of the recession. However, in many cases more simply decline is the result of the availability of much larger transactions for the period tested. If you are running a simulation "Monte Carlo" in a system that trades infrequently, you will notice that the more recession becomes more likely as the number of transactions in the simulation increases. This means that your tested data in a relatively dormant system show unrealistic recession, which is probably lower than that which you would expect when the actual sale of the system over a long period of time. If you do not have a program to execute simulation Monte Carlo, and you analyze a system that trades infrequently, you must double the size of the historic decline, to see a more realistic picture of what to expect in the real trade with a large amount of transactions.

Increased costs: more of the trade will increase your trading costs in the form of commissions, spreads, etc. Consider the realistic costs of testing in the performance of your system. The basic idea of trading often is to make more money. At some point, the increased frequency of trade will begin to reduce your overall yield. You should be aware of this point, after which the decrease in yield. I am not a mathematician, but I think that traders are selling the system, need a formula to compare the systems, which includes the frequency of trade. (For example: Expectations multiplied by the frequency factor or profits multiplied by frequency). There are other options.

Forex Magazine
based on www.tradejuice.com