LT/ST conflicting situations

[senco]

Regarding measuring risk/reward of a system: Maximum drawdown is not a very good measure for system risk. Also it is not a good predictor for future drawdown. There is math logic behind the popular saying "the worst drawdown of a system is yet to come".
We look at backtests trying to get an estimate for a system's future behavior with an underlying assumption that the statistical characteristics will remain the same. But the maximum drawdown is not a good representation of the statistical distribution of trade results; it expresses just a single path of trade that occured up to this point.
A simple example: The following trade results could come from two systems with similar statistical characteristics:
A. +2 -3 +2 -1 +2 -2 +1
B. +2 -2 -3 -1 +2 +2 +1
In evaluating the potential risk of a system, measures that look at the statistics of trade results and not a single path would be more predictive. Downward Deviation, or Downward Deviation of rolling periods would be a much better measure for system's risk. Sortino, or even Sharpe Ratio would give a better prediction for future system risk adjusted return than (past profit) / (maximum drawdown).

[Pascal]

My answer would be, that honestly I have no idea! But I see that you found such a filter... So, what is that column to the right?

Great job, Pascal!

The issue with ATR is that it is un-directional. So what we need is simply to get the direction back into ATR or at least have an indicator that separately produces the ATR direction.

Standard Wyckoff or Larry Williams indicators usually say that when the price finishes at the top half of its day range, this is a positive sign of accumulation. The idea is simply, instead of using the day's range, to take the day's true range, get the mid-point and calculate the ratio of the difference between the close and the mid-point to the mid point. (Close-Midpoint)/Midpoint. This small formula gives you a directional strength of the true range. What I do is then calculate the 20EMA of that value. if it is negative then the buy trade cannot restart when the LT/ST conflicts stops. Otherwise, it can restart.


Pascal