The Subjective Function (Part 5)

Yesterday in http://www.optionfanatic.com/2012/10/10/the-subjective-function-part-4, I began the analysis of graphs posted in http://www.optionfanatic.com/2012/10/09/the-subjective-function-part-3 to determine the subjective function.  Today I will make my remaining observations.

Equity curve #3 posts the greatest profit of all three curves.  This profit of 20.3% is roughly 283% greater than equity curve #2 and about 78% greater than equity curve #3.  This relates to my previous observation of also being in drawdown (DD) more than the other two.  If curve #3 is in DD more than the others but is drawing down from a much greater net profit then I may still be happier with this system than with the others.

With regard to maximum DD (MDD), insert #2 has the edge.  MDD here is -1.8%, which is 25% less than insert #1 (-2.4%) and 18% less than insert #3 (-2.2%).  Lower DD means less risk.  I could increase position size a bit to make for comparable MDDs and a larger profit for insert #2.  While this suggests I could increase position size slightly, though, it certainly would not make up the 283% greater profit equity curve #3 has over #2.

Do not forget that in order to secure the 283% profit, insert #3 has over 10 times as many trades as insert #2 and is therefore in the market over 10 times longer.  Theoretically, this is greater risk that could turn sour on us in the future even though it did not significantly do so in 19.5+ years of backtesting.

Time to unmask the systems:

–Insert #1 (y = 25, z = 10) generated the highest profit factor of all 50 systems.
–Insert #1 generated the highest risk adjusted return (RAR).
–Insert #1 generated the highest RAR:MDD ratio.
–Insert #2 (y = 25, z = 6) is the system that generated the lowest MDD.
–Insert #3 (y = 10, z = 6) is the system that generated the highest net profit.

So which is better?