ADVANCED Strategies

The multibar range BREAKOUT SYSTEM
Breakouts of price channels can be profitable — if the volatility is there and you’re on the right side of the trade. This stop-and-reverse system tries to capture intraday trends in the S&P E-Mini contract by recognizing differences in the characteristics of up moves and down moves.

BY DENNIS MEYERS, PH.D.
FIGURE 1 TRADESTATION CODE FOR THE MULTIBAR RANGE BREAKOUT SYSTEM {Strategy: #MultiBarRangeBO} Input: n(45),bx(0.45),m(15),sx(0.45),XTime(1515); vars: hhv1(h),llv1(l),hhv2(h),llv2(l),ii(0),xb(c),xs(c); hhv1=h; llv1=l; for ii=1 to n-1 begin if h[ii]>hhv1 then hhv1=h[ii]; if l[ii]<llv1 then llv1=l[ii]; end; value1=hhv1-llv1; hhv2=h; llv2=l; for ii=1 to m-1 begin if h[ii]>hhv2 then hhv2=h[ii]; if l[ii]<llv2 then llv2=l[ii]; end; value2=hhv2-llv2; xb= c + (Value1 * bx); xs= c - (Value2 * sx); if time<XTime then begin if marketposition<=0 then Buy Next Bar xb stop; if marketposition>=0 then Sell Short Next Bar xs stop; end; if XTime<>0 then SetExitOnClose;

reakout systems are popular when markets are volatile. Such systems typically identify support and resistance levels when price has been moving in a range or channel, and enter trades when price breaks out of either the up side or down side of a channel. There are two simple ways to define support and resistance levels for price channels. In both cases, it is first necessary to define a lookback period. The first way is to use the highest high and the lowest low of the lookback period. The second way is to determine the range of each bar (high minus low) and add that range (or a percentage of it) to, or subtract it from, the current close. In either case, the upper and lower boundaries represent the price channel. One advantage to the second method is it better reflects the volatility of the market — it will expand and contract as the volatility changes. Breakout strategies require the market to be in a high-volatility period; a trade will become profitable only if it continues to move in the direction of the breakout. Volatility and emotion go hand in hand. As volatility increases, traders have to cope with more risk; hence, the more emotional the market becomes. This is often reflected by the fact markets fall faster than they rise. In the following system, the channel is determined by using the range of the price bars in the lookback period. A breakout above or below the channel’s resistance or support creates buy or sell signals.
www.activetradermag.com • January 2004 • ACTIVE TRADER

B

56

However, the parameters for the buy signals will be different than those for the sell signals, because of the propensity for markets to fall faster than they rise. The range for the last x bars will be defined as the highest high of the last x bars (including the current bar) minus the lowest low of the last x bars (including the current bar). The buy price is determined by adding a percentage of the range of the last n bars to the current close — the previously described volatility-adjusted technique. If the next bar’s price exceeds the buy price, the system issues a buy signal. The sell price is determined by subtracting a percentage (a different percentage than the buy percentage) of the range of the last m bars from the current close. If the next bar’s price falls below the sell price, the system issues a sell signal. The resulting Multibar Channel Breakout system will trade the S&P 500 E-Mini futures on an intraday basis using one-minute bars. The TradeStation Code is shown in Figure 1 (opposite page).

TABLE 1 MULTIBAR RANGE BREAKOUT SYSTEM PERFORMANCE SUMMARY, JULY 7 TO AUG. 1, 2003 The system triggered more short trades during the test, but produced profits on long trades, as well. All trades Total net profit Gross profit Gross loss Profit factor Open position P/L Total number of trades Percent profitable Winning trades Losing trades Even trades $4,912.50 $6,637.50 ($1,725.00) 3.85 $0.00 55 58.18% 32 22 1 $89.32 $207.42 ($78.41) 2.65 $700.00 ($300.00) 10.55% 17.39% 1,637.50% 5 5 134.96 166.88 91.95 ($887.50) ($300.00) ($475.00) Long trades $1,450.00 $1,912.50 ($462.50) 4.14 $0.00 20 55.00% 11 9 0 $72.50 $173.86 ($51.39) 3.38 $362.50 ($125.00) 18.95% 27.03% 1,160.00% 5 2 45.8 69.18 17.22 ($862.50) ($175.00) ($475.00) Short trades $3,462.50 $4,725.00 ($1,262.50) 3.74 $0.00 35 60.00% 21 13 1 $98.93 $225.00 ($97.12) 2.32 $700.00 ($300.00) 14.81% 23.76% 1,154.17% 4 3 185.91 218.05 143.69 ($975.00) ($400.00) ($362.50)

Multibar Channel Breakout rules
This is a stop-and-reverse system, meaning it is always in the market: When a sell signal occurs, long trades are exited and a short trade is entered; when a buy signal occurs, short trades are exited and a long trade is entered. These are the system’s parameters: ES = E-Mini price; BRange = the price range over the last n bars; SRange = the price range over the last m bars; bx = the percentage multiplier of the BRange for buy signals; sx = the percentage multiplier of the SRange for sell signals; c = the current price; buyCh = c + bx*BRange; sellCh = c - sx*SRange where n = The number of lookback bars (including the current bar) for buy signals. m = The number of lookback bars (including the current bar) for sell signals. Notice that not only are the percentage multipliers for long (bx) and short trades (sx) different, the lookback periods the system references for buys (n) and sells (m) are also different. The trade rules are simple: 1. Buy rule: Buy the next bar at buyCh, stop. 2. Sell rule: Sell the next bar at sellCh, stop. 3. Intraday bar exit rule: Exit the position on the close (no overnight trades). Although it may not be immediately obvious, this system avoids the opening gap whipsaw problem — trades being triggered because of large gap openings
ACTIVE TRADER • January 2004 • www.activetradermag.com

Avg. trade net profit Avg. winning trade Avg. losing trade Ratio avg. winning/ avg. losing Largest winning trade Largest losing trade Largest winner as % of gross profit Largest loser as % of gross loss Net profit as % of largest loss Max. consecutive winning trades Max. consecutive losing trades Avg. bars in total trades Avg. bars in winning trades Avg. bars in losing trades Max. drawdown (intraday peak to valley) Max. drawdown (trade close to trade close) Max. trade drawdown
Source: TradeStation

57

TABLE 2 TRADE-BY-TRADE SUMMARY: JULY 7 TO AUG. 1, 2003 This list contains each trade in the test period. Overall, 58.18 percent of trades were profitable.
Entry date 7/7/03 7/7/03 7/7/03 7/7/03 7/7/03 7/8/03 7/8/03 7/9/03 7/10/03 7/11/03 7/14/03 7/15/03 7/16/03 7/16/03 7/16/03 7/17/03 7/17/03 7/17/03 7/18/03 7/18/03 7/18/03 7/18/03 7/18/03 7/21/03 7/22/03 7/22/03 7/22/03 7/22/03 7/23/03 7/23/03 7/23/03 7/23/03 7/24/03 7/24/03 7/24/03 7/25/03 7/25/03 7/25/03 7/25/03 7/28/03 7/28/03 7/28/03 7/29/03 7/29/03 7/29/03 7/30/03 7/30/03 7/30/03 7/30/03 7/30/03 7/31/03 7/31/03 7/31/03 7/31/03 8/1/03 Entry time 10:36 Sell 12:35 Buy 12:52 Sell 13:01 Buy 13:24 Sell 9:51 Sell 14:09 Buy 9:33 Sell 8:58 Sell 9:05 Sell 9:54 Sell 9:05 Sell 8:48 Sell 12:10 Buy 12:22 Sell 9:04 Sell 11:01 Buy 11:02 Sell 8:49 Sell 11:27 Buy 12:02 Sell 13:01 Buy 14:35 Sell 8:32 Sell 9:20 Sell 10:01 Buy 11:37 Sell 14:37 Buy 8:35 Sell 12:51 Buy 13:38 Sell 14:27 Buy 9:21 Sell 12:45 Buy 13:10 Sell 8:43 Buy 9:01 Sell 13:01 Buy 15:08 Sell 8:33 Sell 12:37 Buy 12:57 Sell 9:01 Sell 10:34 Buy 11:28 Sell 8:34 Sell 11:38 Buy 11:56 Sell 13:02 Buy 13:04 Sell 9:00 Buy 11:20 Sell 13:07 Buy 13:22 Sell 8:46 Sell Entry price ($) 1,003.75 1,002.50 1,001.50 1,002.75 1,002.50 1,002.00 1,004.25 1,007.75 992.50 993.25 1,012.25 1,002.75 1,000.50 993.25 992.25 988.25 986.25 983.75 986.00 985.25 985.50 985.50 991.50 988.00 976.75 978.50 985.75 987.25 986.25 984.75 986.50 986.75 995.50 993.75 994.25 982.50 983.25 989.25 996.00 995.50 996.50 996.25 991.25 986.75 992.00 990.00 989.25 988.00 988.75 987.00 995.75 1,001.25 1,003.00 1,002.25 983.50 Exit date 7/7/03 7/7/03 7/7/03 7/7/03 7/7/03 7/8/03 7/8/03 7/9/03 7/10/03 7/11/03 7/14/03 7/15/03 7/16/03 7/16/03 7/16/03 7/17/03 7/17/03 7/17/03 7/18/03 7/18/03 7/18/03 7/18/03 7/18/03 7/21/03 7/22/03 7/22/03 7/22/03 7/22/03 7/23/03 7/23/03 7/23/03 7/23/03 7/24/03 7/24/03 7/24/03 7/25/03 7/25/03 7/25/03 7/25/03 7/28/03 7/28/03 7/28/03 7/29/03 7/29/03 7/29/03 7/30/03 7/30/03 7/30/03 7/30/03 7/30/03 7/31/03 7/31/03 7/31/03 7/31/03 8/1/03 Exit time 12:35 12:52 13:01 13:24 15:15 14:09 15:15 15:15 15:15 15:15 15:15 15:15 12:10 12:22 15:15 11:01 11:02 15:15 11:27 12:02 13:01 14:35 15:15 15:15 10:01 11:37 14:37 15:15 12:51 13:38 14:27 15:15 12:45 13:10 15:15 9:01 13:01 15:08 15:15 12:37 12:57 15:15 10:34 11:28 15:15 11:38 11:56 13:02 13:04 15:15 11:20 13:07 13:22 15:15 15:15 Exit Bars price ($) in trade 1,002.50 119 1,001.50 17 1,002.75 9 1,002.50 23 1,002.75 111 1,004.25 258 1,007.50 66 1,001.00 342 988.75 377 997.75 370 1,002.75 317 1,000.75 370 993.25 202 992.25 12 995.25 173 986.25 117 983.75 1 980.50 253 985.25 158 985.50 35 985.50 59 991.50 94 990.00 40 978.25 403 978.50 41 985.75 96 987.25 180 986.75 38 984.75 256 986.50 47 986.75 49 987.75 48 993.75 204 994.25 25 980.25 125 983.25 18 989.25 240 996.00 127 997.00 7 996.50 244 996.25 20 993.50 138 986.75 93 992.00 54 989.00 227 989.25 184 988.00 18 988.75 66 987.00 2 986.25 131 1,001.25 140 1,003.00 107 1,002.25 15 988.50 113 979.50 389 Trade $P&L $62.50 ($50.00) ($62.50) ($12.50) ($12.50) ($112.50) $162.50 $337.50 $187.50 ($225.00) $475.00 $100.00 $362.50 ($50.00) ($150.00) $100.00 ($125.00) $162.50 $37.50 $12.50 $0.00 $300.00 $75.00 $487.50 ($87.50) $362.50 ($75.00) ($25.00) $75.00 $87.50 ($12.50) $50.00 $87.50 $25.00 $700.00 $37.50 ($300.00) $337.50 ($50.00) ($50.00) ($12.50) $137.50 $225.00 $262.50 $150.00 $37.50 ($62.50) ($37.50) ($87.50) $37.50 $275.00 ($87.50) ($37.50) $687.50 $200.00 Trade max$Pft $175.00 $0.00 $25.00 $37.50 $87.50 $62.50 $187.50 $525.00 $512.50 $62.50 $575.00 $362.50 $625.00 $0.00 $187.50 $275.00 $0.00 $337.50 $287.50 $62.50 $50.00 $375.00 $75.00 $700.00 $112.50 $500.00 $237.50 $25.00 $412.50 $187.50 $100.00 $62.50 $162.50 $62.50 $762.50 $150.00 $375.00 $412.50 $0.00 $175.00 $100.00 $187.50 $450.00 $450.00 $300.00 $275.00 $0.00 $62.50 $0.00 $125.00 $387.50 $37.50 $12.50 $725.00 $300.00 Time 12:06 12:35 12:55 13:23 14:22 11:21 14:48 11:03 13:48 9:08 14:46 14:05 10:12 12:10 14:30 9:39 11:01 14:01 9:20 11:31 12:19 14:11 14:53 14:10 9:50 11:10 12:37 14:38 11:16 13:35 14:14 15:13 9:50 12:57 14:57 9:00 9:52 14:54 15:08 8:52 12:55 14:42 9:34 10:58 14:17 10:32 11:38 12:19 13:02 13:14 10:14 11:40 13:19 14:56 9:35 Trade max$DD ($12.50) ($50.00) ($62.50) ($25.00) ($112.50) ($175.00) ($62.50) $0.00 ($62.50) ($337.50) ($112.50) ($275.00) $0.00 ($50.00) ($150.00) $0.00 ($125.00) ($25.00) ($25.00) ($12.50) ($25.00) $0.00 ($87.50) ($12.50) ($87.50) ($75.00) ($150.00) ($87.50) $0.00 ($37.50) ($50.00) ($62.50) ($50.00) $0.00 ($25.00) ($37.50) ($337.50) ($87.50) ($62.50) ($187.50) ($12.50) ($87.50) $0.00 ($12.50) ($250.00) ($37.50) ($62.50) ($50.00) ($87.50) ($25.00) ($400.00) ($112.50) ($50.00) ($12.50) ($125.00) Time 10:36 12:38 13:01 13:08 13:47 10:19 14:11 9:33 9:04 11:23 10:01 9:46 8:48 12:18 15:10 9:04 11:02 11:06 9:02 11:27 12:03 13:01 14:41 8:32 10:01 10:18 14:02 14:49 8:35 12:55 13:39 14:35 10:27 12:45 13:11 8:45 12:33 13:25 15:12 10:29 12:37 14:04 9:01 10:34 12:33 9:56 11:52 12:01 13:04 14:21 9:08 12:14 13:16 13:22 8:51

Source: Meyers Analytics, LLC

58

www.activetradermag.com • January 2004 • ACTIVE TRADER

FIGURE 2 RIDING THE TREND During this period, the system caught one intraday uptrend, one intraday downtrend, and produced small losses on two signals when the market was flat.
September 2003 S&P E-Mini futures (ESU03), one-minute 1,010 Short Short

1,005

Buy

1,000

995

990 Buy End of day exit End of day exit Short 985

980 600 400 200 0 -200

7/30

9:11

9:33

9:55

10:17 10:39 11:01 11:23 11:45 12:07 12:29 12:51 13:13 13:35 13:57 14:19 14:41

8/1

Source: TradeStation

that quickly reverse and stop out the position. With this system, if there is a gap on the opening bar, the buy and sell ranges are expanded and no trades are made until the buy and sell ranges contract or the price breaks the expanded ranges. Breaking the expanded ranges takes time and avoids the opening gap whipsaw.

difficult to sustain more than a handful of consecutive losses, we eliminated all cases that had more than five losing trades in a row. Of the remaining test results, we chose the one that had the highest total net profit and the lowest drawdown. The optimization procedure produced the following system parameters: n = 45; bx = 0.45; m = 15; sx = 0.45; Table 1 (p. 43) shows the performance summary for the fourweek test period (slippage and commissions not included). Table 2 (opposite page) is a trade-by-trade summary of all the trades. The average net profit per trade was $89 — well above slippage and commissions for a typical S&P E-Mini trade. The largest losing trade was $300, and the biggest intraday drawdown was $887. These losses are small compared to the total net profit of $4,912. Figures 2 and 3 are one-minute charts of the S&P E-Mini that span July 31 to Aug. 1. The Multibar Range Breakout channels are superimposed on the price series, and all the buy and sell signals are marked. Finally, the bottoms of Figures 2 and 3
59

Testing
The system was tested from July 7 through Aug. 1, 2003, using September 2003 E-Mini futures (ESU03) one-minute bars. A wide range of parameter values was tested to find the optimal ones for the system. The parameter ranges tested for the initial optimization test were: n =10 to 50 in steps of 5; bx = 0.4 to 1 in steps of 0.05; m = 10 to 50 in steps of 5; sx = 0.4 to 1 in steps of 0.05; After the initial test, we had to choose one set of parameters that produced the most realistic results. To avoid curve fitting, we eliminated all results that had profit factors (gross profit divided by gross loss) greater than 4.0, since such performance was unlikely to be duplicated in the future. Also, because it is
ACTIVE TRADER • January 2004 • www.activetradermag.com

FIGURE 3 ONE DAY, ONE TRADE If no signal in the opposite direction is triggered, the system will stay in the same direction the entire day. All trades are exited at the close — no positions are held overnight.
September 2003 S&P E-Mini futures (ESU03), one-minute 1,002 1,000 998 996 994 992 990 Sell End of day exit 988 986 984 982 980 978 End of 976 day exit 600 400 200 0 14:19 14:41 8/1 9:02 9:24 9:46 10:08 10:30 10:52 11:14 11:36 11:58 12:20 12:42 13:04 13:26 13:48 14:10 14:32 14:54

Source: TradeStation

include the bar-by-bar profit or loss of each trade. Figure 4 is a daily chart of the S&P EMini futures from July 7 to Aug. 1, and shows the market moved up, down and sideways during this period. The system was able to produce profits on both the long and short sides of the market, and aside from a streak of five losing trades near the outset of the test period, never had more than three consecutive losses. The Multibar Channel Breakout system’s positive performance warrants further investigation. If you consider following this system in real-time, pay close attention to how the real-time statistics compare to the hypothetical numbers shown here. If the numbers begin to deviate, another review of the system parameters are in order. Individual articles can be purchased and downloaded from www.activetradermag.com/ purchase_articles.htm.

FIGURE 4 DAILY PERSPECTIVES The daily chart of the test period shows the system was able to profit on both sides of the market when conditions shifted from uptrend to downtrend to consolidation.
September 2003 S&P E-Mini futures (ESU03), daily 1,015 1.010 1,005 1,000 995 990 985 980 975 7 Source: TradeStation 14 21 28

60

www.activetradermag.com • January 2004 • ACTIVE TRADER

The TRADING Systems Lab
EQUITY CURVE

DeMark variation
Markets: Stocks, stock index futures, index stocks
(SPDRs, DIAs, QQQs), futures and currencies

600,000

500,000

System logic:

Sell

This system is based on a simple pattern, named TD 300,000 Carrie, described by Tom DeMark in his book New Market Timing Techniques (John Wiley & Sons, 1997). It trades a move above or below the true high (the 200,000 highest of one bar’s high and the previous bar’s close) or the true low (the lowest of one bar’s low and the previous bar’s close) of the bar four days 100,000 prior to the current (active) bar. However, for the breakout to be valid it must be qualified by a few criteria. (The following rules are described in terms of 0 11/12/91 11/12/92 11/12/93 11/12/94 11/12/95 11/12/96 11/12/97 11/12/98 11/12/99 11/12/00 a long trade; reverse for short trades.) First, to identify a strongly trending market, the true high of four days ago must be higher than the high five days ago. requiring the breakout to take place intraday, we enter into an If this requirement is not met, it’s still possible to get an entry signal if orderly market instead of a highly volatile one. the market has made a correction counter to the direction of an eventual trade (i.e., a downward correction in the case of a long trade). In Rules: an uptrend this correction is identified by the highs of either two or 1. Prepare to go long today if a. the true high from four days ago is higher than the high from three days ago being lower than the true high of four days ago. either two, three or five days ago, and Second, the close of the bar prior to the anticipated breakout b. yesterday’s close is lower than the close two days ago, and needs to be lower then the previous bar’s close. This is to ensure that c. today’s open is lower than the high four days ago. most traders still have a short-term bearish outlook prior to the upside breakout. That will increase the force of the up move as the 2. Prepare to go short today if a. the true low from four days ago is lower than the low from traders are caught on the wrong side of the market and scramble to either two, three or five days ago, and get out of the market. b. yesterday’s close is higher than the close two days ago, and Finally, the breakout must take place intraday and exceed the true c. today’s open is higher than the low four days ago high of four days ago by a sufficient amount. That the trade needs to take place intraday means, for a valid upside breakout, the open- 3. Go long today with a stop order at the true high of four days ing price of the day for the breakout must be lower than the true ago, plus 0.1 percent. high of four days ago. This is to avoid entering into too strong an 4. Go short today with a stop order at the true low of four days opening, which often marks the end of the current trend. Also, by ago, minus 0.1 percent. 5. Risk 2 percent of available equity per trade. 6. Exit all trades with a loss if the market moves SAMPLE TRADES against the position by 4 percent or more. 7. Exit all trades with a profit if the market Amgen (AMGN), daily 71.00 Sell moves in favor of the position by 12 percent or LX#3 LX 69.00 more. 8. Exit all trades after five days, counting the Buy 67.00 day for the entry as day one, and no matter how late in the day the trade was made (i.e., a trade 65.00 LX#3 executed at 2:50 p.m. on Monday would be exitLX#3 Buy ed Friday the same week). 63.00
62.00
Sell Buy

Account balance ($)

400,000

60.00 58.00

Test period: November 1991 to June 2001 Test data: Daily stock prices for the 30 highest capitalized stocks in the Nasdaq 100 (excluding Intel and Microsoft, which are also part of the Dow Jones Industrial Average). $10 commission deducted per trade. Starting equity: $100,000 (nominal) Buy-and-hold stats:
DJIA: Total return – 254 percent; Max DD – 22.5

SX Buy SX#3

Buy

56.00 55.00 53.00 51.00

2 9 16 23 30 April May Source: TradeStation by TradeStation Group Inc.

7

14

21

28

4 June

11

62

www.activetradermag.com • September 2001 • ACTIVE TRADER

DRAWDOWN CURVE
11/12/91 0.00% -5.00% -10.00% -15.00% -20.00% -25.00% -30.00% -35.00% -40.00% 11/12/92 11/12/93 11/12/94 11/12/95 11/12/96 11/12/97 11/12/98 11/12/99 11/12/00

percent (current); Longest flat – 18 months (current). S&P 500: Total return – 216 percent; Max DD – 30.4 percent (current); Longest flat – 15 months (current). Nasdaq: Total return – 519 percent; Max DD – 72 percent (current); Longest flat – 15 months (current).

go with the entry strategies. We therefore arbitrarily attached a 4-percent stop-loss and a 12-percent profit-exit target, plus a time-based stop that exits all trades after five days, no matter what. (All these stops are completely un-optimized, which means a little optimization should increase performance considerably.) Also, note the system operates with no trend filter, such as a long-term moving average. Such filters, which allow only those trades that are in the direction of the underlying trend, also improve performance. Finally, note that many of the stocks traded in this example weren’t tradable until a few years ago, which explains the initial large drawdown and exceptionally long flat period. Had we been able to test the same 30 stocks throughout the entire period, it’s highly likely performance would have improved considerably.

ROLLING TIME WINDOW RETURN ANALYSIS
Cumulative Most recent: Average: Best: Worst: St. dev.: Annualized Most recent: Average: Best: Worst: St. dev: 12 months 24 months 36 months 48 months 60 months

System analysis
In DeMark’s original work, the amount by which the price had to clear the breakout level was set to the smallest price increment for the market in question. In this version, this is changed to one-tenth of a percent to make the system consistent across all markets. This means that for a stock that trades around $50, this amount is about five cents; for a stock that trades around $100, it comes out to approximately 10 cents. DeMark did not suggest any exit strategies or stop-loss levels to

4.27% 21.73% 87.23% -26.11% 29.26%
12 months

34.67% 81.32% 157.51% 59.85% 115.57% 185.15% 206.04% 294.97% 393.04% -25.61% -21.38% -15.55% 61.15% 95.27% 125.03%
24 months 36 48 months months

336.03% 254.23% 494.23% 12.15% 137.24%
60 months

STRATEGY SUMMARY
Profitability End. equity ($): 415,573 Total return (%): 316 Avg. annual ret. (%): 16.03 Profit factor: 1.13 Avg. tied cap (%): 58 Win. months (%): 53 Drawdown Max DD (%): Longest flat (m): Trade statistics No. trades: 3,529 Avg. trade ($): 158 Avg. DIT: 3.0 Avg. win/loss ($): 1,150 (1,393) Lrg. win/loss ($): 12,674 (8,131) Win. trades (%): 39.4 TIM (%): Tr./Mark./Year: Tr./Month: 97 /15.1 12.3 30.7

4.27% 16.05% 21.73% 26.43% 87.23% 74.94% -26.11% -13.75% 28.26% 26.94%

21.94% 29.18% 58.07% -7.70% 24.99%

26.68% 29.95% 49.01% -4.14% 22.48%

34.25% 28.78% 42.82% 2.32% 18.86%

LEGEND: Cumulative returns — Most recent: most recent return from start to end of the respective periods • Average: the average of all cumulative returns from start to end of the respective periods • Best: the best of all cumulative returns from start to end of the respective periods • Worst: the worst of all cumulative returns from start to end of the respective periods • St. dev: the standard deviation of all cumulative returns from start to end of the respective periods Annualized returns — The ending equity as a result of the cumulative returns, raised by 1/n, where n is the respective period in number of years

37.5 57.2

Send Active Trader your systems
If you have a trading system or idea you’d like to see tested, send it to us at the Trading System Lab. We’ll test it on a portfolio of stocks or futures (for now, maximum 30 markets, using daily data starting Jan. 1, 1990), using true portfolio analysis/optimization. Most system-testing software only allows you to test one market at a time. Our system-testing technique lets all markets share the same account and is based on the interaction within the portfolio as a whole. Start by e-mailing system logic (in TradeStation’s EasyLanguage or in an Excel spreadsheet) and a short description to editorial@activetradermag.com, and we’ll get back to you. Note: Each system must have a clearly defined stop-loss level and a suggested optimal amount to risk per trade.

LEGEND: End. equity ($) — equity at the end of test period • Total return (%) — total percentage return over test period • Avg. annual ret. (%) — average continuously compounded annual return • Profit factor — gross profit/gross loss • Avg. tied cap (%) — average percent of total available capital tied up in open positions • Win. months (%) — percentage profitable months over test period • Max DD (%) — maximum drop in equity • Longest flat — longest period, in months, spent between two equity highs • No. trades — number of trades • Avg. trade ($) — amount won or lost by the average trade • Avg. DIT— average days in trade • Avg. win/loss ($) — average wining and losing trade, respectively • Lrg. win/loss ($) — largest wining and losing trade, respectively • Win. trades (%) — percent winning trades • TIM (%) — amount of time there is at least one open position for entire portfolio, and each market, respectively • Tr./Mark./Year — trades per market per year • Tr./Month — trades per month for all markets

Disclaimer: The Trading System Lab is intended for educational purposes only to provide a perspective on different market concepts. It is not meant to recommend or promote any trading system or approach. Traders are advised to do their own research and testing to determine the validity of a trading idea. Past performance does not guarantee future results; historical testing may not reflect a system’s behavior in real-time trading.

ACTIVE TRADER • September 2001 • www.activetradermag.com

63

Sign up to vote on this title
UsefulNot useful