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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

B
{Strategy: #MultiBarRangeBO}
reakout systems are popular when markets are
Input: n(45),bx(0.45),m(15),sx(0.45),XTime(1515);
volatile. Such systems typically identify support
vars: hhv1(h),llv1(l),hhv2(h),llv2(l),ii(0),xb(c),xs(c);
and resistance levels when price has been moving
in a range or channel, and enter trades when price
hhv1=h; llv1=l;
breaks out of either the up side or down side of a channel.
for ii=1 to n-1 begin
There are two simple ways to define support and resistance
if h[ii]>hhv1 then hhv1=h[ii]; if l[ii]<llv1 then llv1=l[ii];
levels for price channels. In both cases, it is first necessary to
end;
define a lookback period. The first way is to use the highest
value1=hhv1-llv1;
high and the lowest low of the lookback period. The second
way is to determine the range of each bar (high minus low) and
hhv2=h; llv2=l;
add that range (or a percentage of it) to, or subtract it from, the
for ii=1 to m-1 begin
current close.
if h[ii]>hhv2 then hhv2=h[ii]; if l[ii]<llv2 then llv2=l[ii];
In either case, the upper and lower boundaries represent the
end;
price channel. One advantage to the second method is it better
value2=hhv2-llv2;
reflects the volatility of the market — it will expand and con-
tract as the volatility changes.
xb= c + (Value1 * bx);
Breakout strategies require the market to be in a high-volatil-
xs= c - (Value2 * sx);
ity period; a trade will become profitable only if it continues to
move in the direction of the breakout. Volatility and emotion go
if time<XTime then begin
hand in hand. As volatility increases, traders have to cope with
if marketposition<=0 then Buy Next Bar xb stop;
more risk; hence, the more emotional the market becomes. This
if marketposition>=0 then Sell Short Next Bar xs stop;
is often reflected by the fact markets fall faster than they rise.
end;
In the following system, the channel is determined by using
the range of the price bars in the lookback period. A breakout
if XTime<>0 then SetExitOnClose;
above or below the channel’s resistance or support creates buy
or sell signals.

56 www.activetradermag.com • January 2004 • ACTIVE TRADER


However, the parameters for the buy signals will be TABLE 1 MULTIBAR RANGE BREAKOUT SYSTEM
different than those for the sell signals, because of the PERFORMANCE SUMMARY, JULY 7 TO AUG. 1, 2003
propensity for markets to fall faster than they rise. The
range for the last x bars will be defined as the highest The system triggered more short trades during the test, but pro-
high of the last x bars (including the current bar) minus duced profits on long trades, as well.
the lowest low of the last x bars (including the current
bar).
All trades Long trades Short trades
The buy price is determined by adding a percentage
of the range of the last n bars to the current close — the Total net profit $4,912.50 $1,450.00 $3,462.50
previously described volatility-adjusted technique. If Gross profit $6,637.50 $1,912.50 $4,725.00
the next bar’s price exceeds the buy price, the system Gross loss ($1,725.00) ($462.50) ($1,262.50)
issues a buy signal. The sell price is determined by
Profit factor 3.85 4.14 3.74
subtracting a percentage (a different percentage than
the buy percentage) of the range of the last m bars from Open position P/L $0.00 $0.00 $0.00
the current close. If the next bar’s price falls below the
sell price, the system issues a sell signal. Total number of trades 55 20 35
The resulting Multibar Channel Breakout system Percent profitable 58.18% 55.00% 60.00%
will trade the S&P 500 E-Mini futures on an intraday
Winning trades 32 11 21
basis using one-minute bars. The TradeStation Code is
shown in Figure 1 (opposite page). Losing trades 22 9 13
Even trades 1 0 1
Multibar Channel Breakout rules
This is a stop-and-reverse system, meaning it is always Avg. trade net profit $89.32 $72.50 $98.93
in the market: When a sell signal occurs, long trades Avg. winning trade $207.42 $173.86 $225.00
are exited and a short trade is entered; when a buy sig- Avg. losing trade ($78.41) ($51.39) ($97.12)
nal occurs, short trades are exited and a long trade is
Ratio avg. winning/
entered. These are the system’s parameters:
avg. losing 2.65 3.38 2.32
ES = E-Mini price; Largest winning trade $700.00 $362.50 $700.00
BRange = the price range over the last n bars; Largest losing trade ($300.00) ($125.00) ($300.00)
SRange = the price range over the last m bars;
bx = the percentage multiplier of the BRange for buy Largest winner as
signals; % of gross profit 10.55% 18.95% 14.81%
sx = the percentage multiplier of the SRange for sell Largest loser as
signals; % of gross loss 17.39% 27.03% 23.76%
c = the current price;
Net profit as
buyCh = c + bx*BRange;
% of largest loss 1,637.50% 1,160.00% 1,154.17%
sellCh = c - sx*SRange
Max. consecutive
where winning trades 5 5 4
n = The number of lookback bars (including the cur-
Max. consecutive
rent bar) for buy signals.
losing trades 5 2 3
m = The number of lookback bars (including the
current bar) for sell signals. Avg. bars in
total trades 134.96 45.8 185.91
Notice that not only are the percentage multipliers Avg. bars in
for long (bx) and short trades (sx) different, the look- winning trades 166.88 69.18 218.05
back periods the system references for buys (n) and
Avg. bars in
sells (m) are also different. The trade rules are simple:
losing trades 91.95 17.22 143.69
1. Buy rule: Buy the next bar at buyCh, stop. Max. drawdown
2. Sell rule: Sell the next bar at sellCh, stop. (intraday peak to valley) ($887.50) ($862.50) ($975.00)
3. Intraday bar exit rule: Exit the position on the
Max. drawdown
close (no overnight trades).
(trade close to trade close) ($300.00) ($175.00) ($400.00)
Although it may not be immediately obvious, this sys- Max. trade drawdown ($475.00) ($475.00) ($362.50)
tem avoids the opening gap whipsaw problem —
trades being triggered because of large gap openings Source: TradeStation

ACTIVE TRADER • January 2004 • www.activetradermag.com 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 Entry Entry Exit Exit Exit Bars Trade Trade Trade
date time price ($) date time price ($) in trade $P&L max$Pft Time max$DD Time
7/7/03 10:36 Sell 1,003.75 7/7/03 12:35 1,002.50 119 $62.50 $175.00 12:06 ($12.50) 10:36
7/7/03 12:35 Buy 1,002.50 7/7/03 12:52 1,001.50 17 ($50.00) $0.00 12:35 ($50.00) 12:38
7/7/03 12:52 Sell 1,001.50 7/7/03 13:01 1,002.75 9 ($62.50) $25.00 12:55 ($62.50) 13:01
7/7/03 13:01 Buy 1,002.75 7/7/03 13:24 1,002.50 23 ($12.50) $37.50 13:23 ($25.00) 13:08
7/7/03 13:24 Sell 1,002.50 7/7/03 15:15 1,002.75 111 ($12.50) $87.50 14:22 ($112.50) 13:47
7/8/03 9:51 Sell 1,002.00 7/8/03 14:09 1,004.25 258 ($112.50) $62.50 11:21 ($175.00) 10:19
7/8/03 14:09 Buy 1,004.25 7/8/03 15:15 1,007.50 66 $162.50 $187.50 14:48 ($62.50) 14:11
7/9/03 9:33 Sell 1,007.75 7/9/03 15:15 1,001.00 342 $337.50 $525.00 11:03 $0.00 9:33
7/10/03 8:58 Sell 992.50 7/10/03 15:15 988.75 377 $187.50 $512.50 13:48 ($62.50) 9:04
7/11/03 9:05 Sell 993.25 7/11/03 15:15 997.75 370 ($225.00) $62.50 9:08 ($337.50) 11:23
7/14/03 9:54 Sell 1,012.25 7/14/03 15:15 1,002.75 317 $475.00 $575.00 14:46 ($112.50) 10:01
7/15/03 9:05 Sell 1,002.75 7/15/03 15:15 1,000.75 370 $100.00 $362.50 14:05 ($275.00) 9:46
7/16/03 8:48 Sell 1,000.50 7/16/03 12:10 993.25 202 $362.50 $625.00 10:12 $0.00 8:48
7/16/03 12:10 Buy 993.25 7/16/03 12:22 992.25 12 ($50.00) $0.00 12:10 ($50.00) 12:18
7/16/03 12:22 Sell 992.25 7/16/03 15:15 995.25 173 ($150.00) $187.50 14:30 ($150.00) 15:10
7/17/03 9:04 Sell 988.25 7/17/03 11:01 986.25 117 $100.00 $275.00 9:39 $0.00 9:04
7/17/03 11:01 Buy 986.25 7/17/03 11:02 983.75 1 ($125.00) $0.00 11:01 ($125.00) 11:02
7/17/03 11:02 Sell 983.75 7/17/03 15:15 980.50 253 $162.50 $337.50 14:01 ($25.00) 11:06
7/18/03 8:49 Sell 986.00 7/18/03 11:27 985.25 158 $37.50 $287.50 9:20 ($25.00) 9:02
7/18/03 11:27 Buy 985.25 7/18/03 12:02 985.50 35 $12.50 $62.50 11:31 ($12.50) 11:27
7/18/03 12:02 Sell 985.50 7/18/03 13:01 985.50 59 $0.00 $50.00 12:19 ($25.00) 12:03
7/18/03 13:01 Buy 985.50 7/18/03 14:35 991.50 94 $300.00 $375.00 14:11 $0.00 13:01
7/18/03 14:35 Sell 991.50 7/18/03 15:15 990.00 40 $75.00 $75.00 14:53 ($87.50) 14:41
7/21/03 8:32 Sell 988.00 7/21/03 15:15 978.25 403 $487.50 $700.00 14:10 ($12.50) 8:32
7/22/03 9:20 Sell 976.75 7/22/03 10:01 978.50 41 ($87.50) $112.50 9:50 ($87.50) 10:01
7/22/03 10:01 Buy 978.50 7/22/03 11:37 985.75 96 $362.50 $500.00 11:10 ($75.00) 10:18
7/22/03 11:37 Sell 985.75 7/22/03 14:37 987.25 180 ($75.00) $237.50 12:37 ($150.00) 14:02
7/22/03 14:37 Buy 987.25 7/22/03 15:15 986.75 38 ($25.00) $25.00 14:38 ($87.50) 14:49
7/23/03 8:35 Sell 986.25 7/23/03 12:51 984.75 256 $75.00 $412.50 11:16 $0.00 8:35
7/23/03 12:51 Buy 984.75 7/23/03 13:38 986.50 47 $87.50 $187.50 13:35 ($37.50) 12:55
7/23/03 13:38 Sell 986.50 7/23/03 14:27 986.75 49 ($12.50) $100.00 14:14 ($50.00) 13:39
7/23/03 14:27 Buy 986.75 7/23/03 15:15 987.75 48 $50.00 $62.50 15:13 ($62.50) 14:35
7/24/03 9:21 Sell 995.50 7/24/03 12:45 993.75 204 $87.50 $162.50 9:50 ($50.00) 10:27
7/24/03 12:45 Buy 993.75 7/24/03 13:10 994.25 25 $25.00 $62.50 12:57 $0.00 12:45
7/24/03 13:10 Sell 994.25 7/24/03 15:15 980.25 125 $700.00 $762.50 14:57 ($25.00) 13:11
7/25/03 8:43 Buy 982.50 7/25/03 9:01 983.25 18 $37.50 $150.00 9:00 ($37.50) 8:45
7/25/03 9:01 Sell 983.25 7/25/03 13:01 989.25 240 ($300.00) $375.00 9:52 ($337.50) 12:33
7/25/03 13:01 Buy 989.25 7/25/03 15:08 996.00 127 $337.50 $412.50 14:54 ($87.50) 13:25
7/25/03 15:08 Sell 996.00 7/25/03 15:15 997.00 7 ($50.00) $0.00 15:08 ($62.50) 15:12
7/28/03 8:33 Sell 995.50 7/28/03 12:37 996.50 244 ($50.00) $175.00 8:52 ($187.50) 10:29
7/28/03 12:37 Buy 996.50 7/28/03 12:57 996.25 20 ($12.50) $100.00 12:55 ($12.50) 12:37
7/28/03 12:57 Sell 996.25 7/28/03 15:15 993.50 138 $137.50 $187.50 14:42 ($87.50) 14:04
7/29/03 9:01 Sell 991.25 7/29/03 10:34 986.75 93 $225.00 $450.00 9:34 $0.00 9:01
7/29/03 10:34 Buy 986.75 7/29/03 11:28 992.00 54 $262.50 $450.00 10:58 ($12.50) 10:34
7/29/03 11:28 Sell 992.00 7/29/03 15:15 989.00 227 $150.00 $300.00 14:17 ($250.00) 12:33
7/30/03 8:34 Sell 990.00 7/30/03 11:38 989.25 184 $37.50 $275.00 10:32 ($37.50) 9:56
7/30/03 11:38 Buy 989.25 7/30/03 11:56 988.00 18 ($62.50) $0.00 11:38 ($62.50) 11:52
7/30/03 11:56 Sell 988.00 7/30/03 13:02 988.75 66 ($37.50) $62.50 12:19 ($50.00) 12:01
7/30/03 13:02 Buy 988.75 7/30/03 13:04 987.00 2 ($87.50) $0.00 13:02 ($87.50) 13:04
7/30/03 13:04 Sell 987.00 7/30/03 15:15 986.25 131 $37.50 $125.00 13:14 ($25.00) 14:21
7/31/03 9:00 Buy 995.75 7/31/03 11:20 1,001.25 140 $275.00 $387.50 10:14 ($400.00) 9:08
7/31/03 11:20 Sell 1,001.25 7/31/03 13:07 1,003.00 107 ($87.50) $37.50 11:40 ($112.50) 12:14
7/31/03 13:07 Buy 1,003.00 7/31/03 13:22 1,002.25 15 ($37.50) $12.50 13:19 ($50.00) 13:16
7/31/03 13:22 Sell 1,002.25 7/31/03 15:15 988.50 113 $687.50 $725.00 14:56 ($12.50) 13:22
8/1/03 8:46 Sell 983.50 8/1/03 15:15 979.50 389 $200.00 $300.00 9:35 ($125.00) 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 Short

End 985
End of day
of day exit
exit 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 sys- difficult to sustain more than a handful of consecutive losses,
tem, if there is a gap on the opening bar, the buy and sell ranges we eliminated all cases that had more than five losing trades in
are expanded and no trades are made until the buy and sell a row. Of the remaining test results, we chose the one that had
ranges contract or the price breaks the expanded ranges. the highest total net profit and the lowest drawdown. The opti-
Breaking the expanded ranges takes time and avoids the open- mization procedure produced the following system parame-
ing gap whipsaw. ters:

Testing n = 45;
The system was tested from July 7 through Aug. 1, 2003, using bx = 0.45;
September 2003 E-Mini futures (ESU03) one-minute bars. A m = 15;
wide range of parameter values was tested to find the optimal sx = 0.45;
ones for the system. The parameter ranges tested for the initial
optimization test were: Table 1 (p. 43) shows the performance summary for the four-
week test period (slippage and commissions not included).
n =10 to 50 in steps of 5; Table 2 (opposite page) is a trade-by-trade summary of all the
bx = 0.4 to 1 in steps of 0.05; trades. The average net profit per trade was $89 — well above
m = 10 to 50 in steps of 5; slippage and commissions for a typical S&P E-Mini trade. The
sx = 0.4 to 1 in steps of 0.05; largest losing trade was $300, and the biggest intraday draw-
down was $887. These losses are small compared to the total
After the initial test, we had to choose one set of parameters net profit of $4,912.
that produced the most realistic results. To avoid curve fitting, Figures 2 and 3 are one-minute charts of the S&P E-Mini
we eliminated all results that had profit factors (gross profit that span July 31 to Aug. 1. The Multibar Range Breakout chan-
divided by gross loss) greater than 4.0, since such performance nels are superimposed on the price series, and all the buy and
was unlikely to be duplicated in the future. Also, because it is sell signals are marked. Finally, the bottoms of Figures 2 and 3

ACTIVE TRADER • January 2004 • www.activetradermag.com 59


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 988
986
End of
day exit 984
982
980
978
End of 976
day exit

600

400

200

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

FIGURE 4 DAILY PERSPECTIVES


include the bar-by-bar profit or loss of
each trade. The daily chart of the test period shows the system was able to profit on
Figure 4 is a daily chart of the S&P E- both sides of the market when conditions shifted from uptrend to downtrend
Mini futures from July 7 to Aug. 1, and to consolidation.
shows the market moved up, down and
sideways during this period. The system September 2003 S&P E-Mini futures (ESU03), daily 1,015
was able to produce profits on both the
long and short sides of the market, and 1.010
aside from a streak of five losing trades
near the outset of the test period, never 1,005
had more than three consecutive losses.
The Multibar Channel Breakout sys- 1,000
tem’s positive performance warrants
further investigation. If you consider 995
following this system in real-time, pay
close attention to how the real-time sta- 990
tistics compare to the hypothetical num-
bers shown here. If the numbers begin to 985
deviate, another review of the system
parameters are in order.  980

975
Individual articles can be purchased and
7 14 21 28
downloaded from www.activetradermag.com/
purchase_articles.htm. Source: TradeStation

60 www.activetradermag.com • January 2004 • ACTIVE TRADER


The TRADING Systems Lab

EQUITY CURVE
600,000
DeMark variation
500,000
Markets: Stocks, stock index futures, index stocks
(SPDRs, DIAs, QQQs), futures and currencies
400,000

Account balance ($)


System logic:
This system is based on a simple pattern, named TD
Carrie, described by Tom DeMark in his book New 300,000
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 cri-
teria. (The following rules are described in terms of 0
a long trade; reverse for short trades.) 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
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 even-
tual 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
three days ago being lower than the true high of four days ago. a. the true high from four days ago is higher than the high from
Second, the close of the bar prior to the anticipated breakout either two, three or five days ago, and
needs to be lower then the previous bar’s close. This is to ensure that b. yesterday’s close is lower than the close two days ago, and
most traders still have a short-term bearish outlook prior to the c. today’s open is lower than the high four days ago.
upside breakout. That will increase the force of the up move as the 2. Prepare to go short today if
traders are caught on the wrong side of the market and scramble to a. the true low from four days ago is lower than the low from
get out of the market. either two, three or five days ago, and
Finally, the breakout must take place intraday and exceed the true b. yesterday’s close is higher than the close two days ago, and
high of four days ago by a sufficient amount. That the trade needs c. today’s open is higher than the low four days ago
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.
SAMPLE TRADES 6. Exit all trades with a loss if the market moves
against the position by 4 percent or more.
Amgen (AMGN), daily Sell 71.00 7. Exit all trades with a profit if the market
LX#3 LX moves in favor of the position by 12 percent or
69.00 more.
Buy 8. Exit all trades after five days, counting the
67.00
day for the entry as day one, and no matter how
65.00 late in the day the trade was made (i.e., a trade
LX#3
LX#3 Buy executed at 2:50 p.m. on Monday would be exit-
63.00 ed Friday the same week).
Sell
62.00
Sell
Buy
Test period: November 1991 to June 2001
60.00
Test data: Daily stock prices for the 30 highest
58.00
SX capitalized stocks in the Nasdaq 100 (excluding
Buy
Buy 56.00 Intel and Microsoft, which are also part of the
55.00 Dow Jones Industrial Average). $10 commission
SX#3 deducted per trade.
53.00
Starting equity: $100,000 (nominal)
51.00
2 9 16 23 30 7 14 21 28 4 11 Buy-and-hold stats:
April May June
Source: TradeStation by TradeStation Group Inc.
DJIA: Total return – 254 percent; Max DD – 22.5

62 www.activetradermag.com • September 2001 • ACTIVE TRADER


DRAWDOWN CURVE
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
0.00%

go with the entry strategies. We therefore arbitrarily


-5.00%
attached a 4-percent stop-loss and a 12-percent prof-
it-exit target, plus a time-based stop that exits all
-10.00%
trades after five days, no matter what. (All these
stops are completely un-optimized, which means a
-15.00%
little optimization should increase performance con-
siderably.)
-20.00%
Also, note the system operates with no trend filter,
such as a long-term moving average. Such filters,
-25.00%
which allow only those trades that are in the direction
of the underlying trend, also improve performance.
-30.00%
Finally, note that many of the stocks traded in this
example weren’t tradable until a few years ago,
-35.00%
which explains the initial large drawdown and
exceptionally long flat period. Had we been able to
-40.00%
test the same 30 stocks throughout the entire period,
percent (current); Longest flat – 18 months (current). it’s highly likely performance would have improved considerably.
S&P 500: Total return – 216 percent; Max DD – 30.4 percent (cur-
rent); Longest flat – 15 months (current).
Nasdaq: Total return – 519 percent; Max DD – 72 percent (current); ROLLING TIME WINDOW RETURN ANALYSIS
Longest flat – 15 months (current).
Cumulative 12 24 36 48 60
months months months months months
System analysis
Most recent: 4.27% 34.67% 81.32% 157.51% 336.03%
In DeMark’s original work, the amount by which the price had to
Average: 21.73% 59.85% 115.57% 185.15% 254.23%
clear the breakout level was set to the smallest price increment for
Best: 87.23% 206.04% 294.97% 393.04% 494.23%
the market in question. In this version, this is changed to one-tenth
Worst: -26.11% -25.61% -21.38% -15.55% 12.15%
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
St. dev.: 29.26% 61.15% 95.27% 125.03% 137.24%
five cents; for a stock that trades around $100, it comes out to Annualized 12 24 36 48 60
approximately 10 cents. months months months months months
DeMark did not suggest any exit strategies or stop-loss levels to Most recent: 4.27% 16.05% 21.94% 26.68% 34.25%
Average: 21.73% 26.43% 29.18% 29.95% 28.78%
STRATEGY SUMMARY Best: 87.23% 74.94% 58.07% 49.01% 42.82%
Profitability Trade statistics Worst: -26.11% -13.75% -7.70% -4.14% 2.32%
St. dev: 28.26% 26.94% 24.99% 22.48% 18.86%
End. equity ($): 415,573 No. trades: 3,529
Total return (%): 316 Avg. trade ($): 158 LEGEND: Cumulative returns — Most recent: most recent return from start to
Avg. annual ret. (%): 16.03 Avg. DIT: 3.0 end of the respective periods • Average: the average of all cumulative returns from
start to end of the respective periods • Best: the best of all cumulative returns from
Profit factor: 1.13 Avg. win/loss ($): 1,150 (1,393) start to end of the respective periods • Worst: the worst of all cumulative returns
Avg. tied cap (%): 58 Lrg. win/loss ($): 12,674 (8,131) from start to end of the respective periods • St. dev: the standard deviation of all
cumulative returns from start to end of the respective periods
Win. months (%): 53 Win. trades (%): 39.4
Annualized returns — The ending equity as a result of the cumulative returns,
Drawdown TIM (%): 97 /15.1 raised by 1/n, where n is the respective period in number of years
Max DD (%): 37.5 Tr./Mark./Year: 12.3
Send Active Trader your systems
Longest flat (m): 57.2 Tr./Month: 30.7 If you have a trading system or idea you’d like to see tested,
LEGEND: End. equity ($) — equity at the end of test period • Total return
send it to us at the Trading System Lab. We’ll test it on a
(%) — total percentage return over test period • Avg. annual ret. (%) —
portfolio of stocks or futures (for now, maximum 30 markets,
average continuously compounded annual return • Profit factor — gross
using daily data starting Jan. 1, 1990), using true portfolio
profit/gross loss • Avg. tied cap (%) — average percent of total available cap-
analysis/optimization.
ital tied up in open positions • Win. months (%) — percentage profitable
Most system-testing software only allows you to test one
months over test period • Max DD (%) — maximum drop in equity •
market at a time. Our system-testing technique lets all mar-
Longest flat — longest period, in months, spent between two equity highs •
kets share the same account and is based on the interaction
No. trades — number of trades • Avg. trade ($) — amount won or lost by
within the portfolio as a whole.
the average trade • Avg. DIT— average days in trade • Avg. win/loss ($)
Start by e-mailing system logic (in TradeStation’s
— average wining and losing trade, respectively • Lrg. win/loss ($) —
EasyLanguage or in an Excel spreadsheet) and a short descrip-
largest wining and losing trade, respectively • Win. trades (%) — percent
tion to editorial@activetradermag.com, and we’ll get back to
winning trades • TIM (%) — amount of time there is at least one open posi-
you.
tion for entire portfolio, and each market, respectively • Tr./Mark./Year —
Note: Each system must have a clearly defined stop-loss
trades per market per year • Tr./Month — trades per month for all markets
level and a suggested optimal amount to risk per trade.

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