I'm in the process of optimizing all of the metrics in the Extended Scorecard, and am working on Kaufmann's Risk of Ruin. Is it just me, or is this metric of questionable value? I'm finding that it's so sensitive to the %win parameter that it's incredibly easy to swing it into either a near 0% or some result close to infinity.
Here's a link describing the metric,
https://improve-your.trade/blog/risk-of-ruin-in-trading
And here's a Google Sheet I shared where you can plug some values in and compute the metric. If anyone sees something I'm doing wrong let me know!
https://docs.google.com/spreadsheets/d/1DhuJnfLlnw4xl48Li8fdhn3bKT0JJNv5iLMJ0PfE_7Y/edit?usp=sharing
Here's a link describing the metric,
https://improve-your.trade/blog/risk-of-ruin-in-trading
And here's a Google Sheet I shared where you can plug some values in and compute the metric. If anyone sees something I'm doing wrong let me know!
https://docs.google.com/spreadsheets/d/1DhuJnfLlnw4xl48Li8fdhn3bKT0JJNv5iLMJ0PfE_7Y/edit?usp=sharing
Rename
Not sure about its value as an Optimization target, but please don't remove it entirely from the available metrics list. I use these levels (10%, 25% etc.) to compare/evaluate strategies that might otherwise show similar results.
What are you using as your max risk %?
If you use 30% max risk like the example then it just gives whatever percent chance the specific strategy has of getting a 30% drawdown again is from my interpretation.
If you were to set the max risk to the max drawdown % of the strategy timeframe then you would see what the future risk of ruin percentage of that same drawdown event occuring again? This is something I could see as valuable info..
The max risk percentage is variable depending on the person trading and does not seem to be a one stop fits all depending on each traders risk tolerance.
If you use 30% max risk like the example then it just gives whatever percent chance the specific strategy has of getting a 30% drawdown again is from my interpretation.
If you were to set the max risk to the max drawdown % of the strategy timeframe then you would see what the future risk of ruin percentage of that same drawdown event occuring again? This is something I could see as valuable info..
The max risk percentage is variable depending on the person trading and does not seem to be a one stop fits all depending on each traders risk tolerance.
I'm not talking about optimization in WL terms, I'm recoding the metrics so that they calculate more quickly :)
We are not removing them, but note that the existing Extended Scorecard metrics are NOT Kaufmann. I just discovered this during my pass over all of the Extended Scorecard. The metrics are using the "Vince" method. If you find them useful we can include them in a new section under the (corrected) Kaufmann metrics.
We are not removing them, but note that the existing Extended Scorecard metrics are NOT Kaufmann. I just discovered this during my pass over all of the Extended Scorecard. The metrics are using the "Vince" method. If you find them useful we can include them in a new section under the (corrected) Kaufmann metrics.
>>What are you using as your max risk %?<<
There are two "Max Risks".
The first is the target "Ruination Level" and the Scorecard offers values of 10%, 25%, 50%, 75%. But thinking this over, I think 25%, 50%, 75% and 100% would be more useful.
The second is the "Max Risk per Trade". For most trading systems we don't use a Max Risk per se, so we have to decide what to plug into this variable. The only thing that is making sense at the moment is average loss for losing trades.
There are two "Max Risks".
The first is the target "Ruination Level" and the Scorecard offers values of 10%, 25%, 50%, 75%. But thinking this over, I think 25%, 50%, 75% and 100% would be more useful.
The second is the "Max Risk per Trade". For most trading systems we don't use a Max Risk per se, so we have to decide what to plug into this variable. The only thing that is making sense at the moment is average loss for losing trades.
QUOTE:
The metrics are using the "Vince" method.
When coding RoR, I accidentally took Ralph Vince's version from 1990. The source Dion quoted believes it's superior to Kaufman's original version, and Perry J.'s 2005 ed. breaks it down with an Excel example.
We're going to include both Kauffman and Vince's methods in Build 30, but so far they seem to have dubious value, there's typically returning zeroes!
QUOTE:
I think 25%, 50%, 75% and 100% would be more useful.
Please keep the 10% as well. For me, that's the more imperative level to compare since it is most likely to occur. 50% or higher is usually zero or close to, unless it's a seriously bad strategy!
10% is hardly a "ruin" while the other numbers may be more difficult to stomach.
Let's just keep the levels as they were, but note: the Risk of Ruin calculations were based on some erroneous starting capital values. They're going to change and be more accurate in Build 30, and we can use the Google Sheet to help validate.
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