Quote Originally Posted by senco View Post
While at it, a couple of general thoughts:
- Whipsaws: If the losses on whipsaws are small, best to look at those just as the cost of doing business. Many systems whipsawed in the huge volatility of last year much more than in the last twenty years, simply bringing out the reality of the market... politicians and central banks flip-flopping.
AFAICT, EV as a follower of large money can only be as good as they are. 2011 performance of large funds have been rather dismal (an understatement), so it's likely to expect EV to deteriorate in its predictive ability. Paul in a recent GGT post shows a bunch of examples where contrary to LEV divergence, price keeps going in the other direction, which begs the use of this technique with other indicator(s) as you've suggested, or at least a much more accurate understanding where EV does work.

Quote Originally Posted by senco View Post
- We are very interested in the Maximum Drawdown of a backtest (and more than that, of a system we trade live). It is also important to understand that the MDD does not represent well the statistics of a trading system output (it is the outcome of a specific path in time, out of many that could have happened). Therefore, MDD is not a good predictor of a system’s future drawdown and is not a good measure for a system’s risk. The saying “your worst drawdown did not happen yet” has indeed a theoretical basis. When comparing different versions of a system in development - it is much better to use measures with more statistical contents, like a rolling period downward deviation.
Fully agree with MDD comment. Do you have a link to RPDD stat calculations?