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Good Objective Functions for Optimization

  
Analysis, Education
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  • Pessimistic Return on Capital (PROC)
    • PROC = {(Avg profit $ per winning trade)*[(# winning trades) – Sqrt(# winning trades)] + (Avg loss $ per losing trade)*[(# losing trades) + Sqrt (# losing trades)]} / Capital
    • Assumes that the system wins less often and loses more often
  • MAR ratio
    • Ratio = CAGR / MDD
  • Efficiency ratio
    • Ratio = out-of-sample annual return / in-sample annual return

Psychological testing

  
  Education
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The following questionnaire asks you to assess your emotional experience during your trading. Specifically, you’ll be rating how often you’ve experienced the following feelings over the past two weeks. Below, I’ll explain how to score the questionnaire; please complete the items before looking at the scoring. My next post will explain how to interpret your results.

Please use the following scale for your responses:

1 = rarely
2 = occasionally
3 = sometimes
4 = often
5 = most of the time

1) I feel happy when I’m trading __5___
2) I feel stressed when I’m trading __1___
3) I feel alert and energetic when I’m trading __5___
4) I feel discouraged when I’m trading __1___
5) I feel capable of succeeding at my trading __5___
6) I blame myself when my trading doesn’t work out __5___
7) I feel satisfied with my trading results __5___
8) I feel edgy and frustrated when I’m trading __1___
9) I feel in control of what happens in my trading __5___
10) I make impulsive decisions when I’m trading __1___ (more…)

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