When you guys are analysing your mean reversion system, what numbers are you looking at to grade its tradeability?
I know in the brainstorming session it seemed that car/mdd ratio was the most popular metric used.
I think for mean reversion systems this ratio maybe overrated. I believe median and frequency of drawdown is probably just as important if not more.
Would you rather trade a system that went into a 10% drawdown every month, and its max drawdown over the life of the system was 15% or would you rather trade a system that had drawdowns of less than 5% a month but its max drawdown was 25%.
I think its also important to look at how quickly the system went into the drawdown and how quickly it got out. If we lost 20% of our capital in 2 consecutive days, we maybe a pretty scared to place orders on the 3rd day, but if we lost this capital slowly over 10 consecutive days, we may have a different confidence level.
What do you guys think?
Nick, I am assuming that you have the most experience with trading a mean reversion system here, can you give us some insight?
