Reply

SQN (System Quality Number) – Error Calculation

6 replies

fiverr

Subscriber, bbp_participant, community, 19 replies.

Visit profile

6 years ago #113612

Hi there,

 

Is there a possible error with the SQN calculation? My score is greater than 40 while the benchmark only goes up to 7. See attached summary of my portfolio. 

 

 

SQN (System Quality Number)
performance metrics developed by Van Tharp, it is the measure of the quality of a trading system.
Standard interpretation of SQN is:
Score: 1.6 ‘“ 1.9 Below average, but trade-able
Score: 2.0 ‘“ 2.4 Average
Score: 2.5 ‘“ 2.9 Good
Score: 3.0 ‘“ 5.0 Excellent
Score: 5.1 ‘“ 6.9 Superb
Score: 7.0 – Keep this up, and you may have the Holy Grail.
SQN Score (System Quality Number Score)
just like in case of R-Expectancy, SQN doesn’t consider the length of testing period and number of
trades produced. In fact it is more favorable for systems that produce more trades, without
considering the length of the testing period.
It is computed as: SQN * (averageTradesPerYear / 100)
 

 

File: SQN.pngSQN.png

0

Mark Fric

Administrator, sq-ultimate, 3 replies.

Visit profile

6 years ago #129907

SQN Score a variation of standard System Quality Number as defined by van Tharp, it is SQN multiplied by  averageTradesPerYear / 100,

so that it removes bias on number of trades. 

 

Its complete formula is available in QuantEditrr in EA Analyzer 4 in StatsValues category, so you can check how it is computed.

I’m not aware of any bug in its computation.

Mark
StrategyQuant architect

0

fiverr

Subscriber, bbp_participant, community, 19 replies.

Visit profile

6 years ago #129940

Hi Mark,

 

This is the reply that I received from contacting Dr. Tharp.

 

 

Thank you very much for your question from last Thursday and for your patience with our reply.  May I answer for Dr. Tharp who is busy working on a book and also preparing to leave for an upcoming trip? 

 

The screenshot helped me understand the origin of your question, thank you for including it.  First, I do not know if the EA Analyzer software calculates the SQN score precisely according to Dr. Tharp’â„¢s definition.  Regardless, a backtest or sample with a very large number of trades can generate a very high SQN score.  For those conditions, Dr. Tharp recommends making an adjustment to the calculation so that the score better reflects the ‘quality of the system rather than having the high number of trades distort the score. 

 

For Dr. Tharp, the primary use of the SQN score is to determine how easily a particular trading system will allow a trader to use position sizing strategies to reach his objectives.  There are occasions where the ‘raw SQN calculation has some value ‘“ even with a very high figure.  Dr. Tharp wrote about these topics in his Definitive Guide to Position Sizing Strategies book which thoroughly explains the SQN performance statistic as well as its application. 

 

Please feel free to email me back if you have additional questions and again, thank you very much.

 

RJ Hixson

http://www.vantharp.com

800-385-4486 or 919-466-0043

0

geektrader

Customer, bbp_participant, community, 542 replies.

Visit profile

6 years ago #130366

There is no limit to “7” for the SQN, it can have any figure and can be distorted by to many trades. Hence there is the SQN Score. In any case, SQN is calculated correctly and yes, it can show values of 40 or 100 or even 1000.

0

fiverr

Subscriber, bbp_participant, community, 19 replies.

Visit profile

6 years ago #130368

There is no limit to “7” for the SQN, it can have any figure and can be distorted by to many trades. Hence there is the SQN Score. In any case, SQN is calculated correctly and yes, it can show values of 40 or 100 or even 1000.

 

Thanks for your response Geektrader. Maybe the manual needs to be updated as currently it states:

 

Standard interpretation of SQN is:
Score: 1.6 ‘“ 1.9 Below average, but trade-able
Score: 2.0 ‘“ 2.4 Average
Score: 2.5 ‘“ 2.9 Good
Score: 3.0 ‘“ 5.0 Excellent
Score: 5.1 ‘“ 6.9 Superb
Score: 7.0 – Keep this up, and you may have the Holy Grail.
SQN Score (System Quality Number Score)
 
To be honest, I know that I have a good trading system and I would like to benchmark it against others i.e. continuous improvement. Since the SQN score is not standardized, I guess that I have to go back to Sharpe and Calmar ratios. 

0

Branico

Customer, bbp_participant, community, 2 replies.

Visit profile

4 years ago #144741

Basically the SQN score should be calculated as follows to have the SQN score for 100 trades according to Van Tharp : 

SQN Score (100) = SQN/Square Root(#trades) * 10

I do not know how it is calculated in StrategyQuant, but the numbers I come up with are different than what is displayed in the program, so there must be an issue with the calculation.

I’ve done some tests and the SQNumber is correct, however the SQN Score is not, unless it indicates something else … 

Also, when using Quant Analyzer, although the SQN and SQN Score are present in the report about strategies/portfolios, they are not present in the view and cannot be added. This is really something that is missing for me as now I have :
– save the list of strategies/portfolios as a csv file
– data to columns (which is a drag if the number of strategies in a portfolio is variable)
– for every strategy/portfolio check the report and add the SQN manually
– add the SQN Score to compare the portfolios 

I sincerely hope this will be changed in SQ4

0

tomas262

Administrator, sq-ultimate, 674 replies.

Visit profile

4 years ago #144753

Hello,

 

thanks for your post. Mark will check your post in the SQ4 thread

0

Viewing 7 posts - 1 through 7 (of 7 total)