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A Simple Trading System

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by Markus Heitkoetter -  Jul 18, 2005
7.1 (from 74 ratings)

As a last step we test these settings on the five markets again to ensure that we haven’t curve-fit the parameters to only one market:
 
Original settings (exit on the same day):

Modified settings (exit on the close of the 2nd day after entering):

We can see a dramatic improvement in the other markets, too.

Conclusion

We started with a very simple idea and defined two easy entry rules. Applying the simplest of all stops (exiting at the end of the day) we received a system with a nice performance. We tested the system with several parameters and on several markets to make sure that we haven’t curve-fitted the system to a certain parameter set or market. Then we tried to improve the system: While applying a stop loss did not increase the system’s performance, the increase of the time in the trade was very successful: We increase the net profit by 30% while decreasing the max drawdown by 17%. Applying these new rules to the other markets we noticed a dramatic increase of all figures in all markets.

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Comment on this Article

Recent Comments:
Quote: Originally Posted by new_trader By product diversity, do you mean trading something like an index and forex? Do you consider trading two different indices as diversification? eg/ S&P500 and Nasdaq 100? You can diversify your trading via running different Systems on different Instruments over different Timeframes. E.g. Strategy - Trendfollowing / Volatility Breakout / Pattern Recognition etc ...
alpha_monkey   27-03-2006 12:44:20
Quote: Originally Posted by twalker I can say that I would indeed. One thing I would not do is trade this system exclusively. You have to diversify by product and system. I do not believe you could survive this draw if this was all you had. If you see this in back test then it is time to go and see exactly why it occured and assess how likely this is to happen again. By product diversity, do you mean trading...
new_trader   27-03-2006 08:55:12
I can say that I would indeed. One thing I would not do is trade this system exclusively. You have to diversify by product and system. I do not believe you could survive this draw if this was all you had. If you see this in back test then it is time to go and see exactly why it occured and assess how likely this is to happen again.
twalker   27-03-2006 06:48:28
Lets have a closer look at what this system puts the trader through... Using Fix Ratio MM everything is great until some point in 2001 when the mother of all drawdowns descends upon you in what looks like about 3 trades!! I am sorry guys to spoil the party but trading is about the detail - can anyone say with hand on heart that they would have carried on trading right through this?? See Attached equity chart. Spam monkey made the point earlier that this should be about addressing the...
rdstagg   27-03-2006 06:40:55
Quote: Originally Posted by twalker Markus, Thanks, I enjoyed the article. More ideas into the pot IMO. I have it running on TS and personally was not disturbed by how it backtested. I have a portfolio that just tracks these public domain systems. It will be interesting to see how yours compares over the coming months. I posted 2 equity curves back to start 1998. First is uncompounded second is applying fixed ratio MM with a $10k...
alpha_monkey   26-03-2006 12:40:40

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