StockFinder reports some very common metrics for system analysis. It is important to note that the the number of winning trades (5558) plus the number of losing trades (4320) equals 9878 trades, which is not equal to the total number of trades (9939) reported. This happens because some trades will return 0.00%. StockFinder does not count the 0%-return trades as winners or losers. So the 0%-return trades do not contribute to the # Trades, Return/Trade, or Time/Trade calculations for the Winners and Losers categories. The Winning % (56%) is calculated by taking the number of winning trades (5558), which excludes the 0%-return trades, and dividing by the number of total trades (9939) which includes the number of 0%-return trades. The Gain\Loss Ratio (1.8) is calculated by taking the Winning Return/Trade (8.25%) and dividing it by the Losing Return/Trade (-4.52%).
It is important to acknowledge these facts because they can have a significant effect on further analyses. For example, if you are performing a Monte Carlo analysis you will often require winning percentage, average win, and average loss as inputs into the analysis. If you use the metrics directly from StockFinder, your analysis will not yield the correct expectancy that would match the average return for all trades (2.65%).
I will be adding a Monte Carlo analysis statistics section to all reported back test results that will account for the issues listed above. I have chosen to add the performance of the 0%-return trades into the winning trades category. This will increase the number of winning trades, increase the winning percentage, and decrease the average return per winning trade. The addendum to the results chart will provide an easy reference for the three Monte Carlo analysis inputs: Win %, Avg Win, Avg Loss. Below are the updated back test results:
This format will preserve the results from StockFinder, while making it easy to evaluate system performance using a Monte Carlo analysis.
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