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Mechanical trading systems - Weissman R.L.

Weissman R.L. Mechanical trading systems - Wiley publishing , 2005 . - 240 p.
ISBN 0-471-65435-3
Download (direct link): mechanicaltradingsystems2005.pdf
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Assuming $200,000.00 under management, the portfolio would have enjoyed an 8.48 percent average annualized return on investment over the 10-year backtested period while enduring a 19.98 percent maximum drawdown. Although these results are somewhat encouraging, traders employing this system must be willing to endure 61.18 percent losing trades, 10 consecutive losses, and lengthy intervals (almost two years) prior to achievement of new equity peaks.
It is interesting to notice how the low correlations of assets within our portfolio improved overall performance of this system. Diversification is probably among the most underemphasized benefits of system trading. A brief glance through the “totals” column shows that the portfolio’s worst drawdown was only around 16 percent greater than the worst component-based drawdown. Moreover, because the portfolio’s total net profits were additive and the worst drawdown was not, the profit to maximum drawdown ratio enjoyed a significant improvement when compared to almost every asset within our portfolio.
TABLE 3.2 Two moving average crossover.
Asset Profit # Trades # Days Max Draw MDD MCL P:MD P:L Ratio %W Time %
ES 6023 117 22 -24621 1122 7 0.24 1.07 35.90 100
TY 10678 94 27 -10681 1032 5 1.00 1.18 37.23 100
ED 5952 88 28 -5606 1577 9 1.06 1.41 32.95 100
SF 15650 121 22 -30350 565 7 0.52 1.14 40.50 100
JY 66337 112 23 -33662 1076 4 1.97 1.49 43.75 100
CL 27940 90 29 -16150 566 5 1.73 1.45 42.22 100
GC -13600 113 23 -23210 2207 7 -0.59 0.73 36.28 100
S -1162 103 25 -15612 1596 8 -0.07 0.98 38.83 100
LH 43490 90 29 -10210 530 7 4.26 2.03 46.67 100
CT 8155 110 23 -28870 1946 7 0.28 1.09 34.55 100
Total 169463 1038 24.8 -39954 635 10 4.24 1.23 38.82 100
Note: All trade summaries include $100 round-turn trade deductions for slippage
and commissions. Data source: CQG, Inc.
52
MECHANICAL TRADING SYSTEMS
ICHIMOKU TWO MOVING AVERAGE CROSSOVER

As stated in Chapter 2, the Ichimoku version of the moving average crossover has a whipsaw waiting period built in as it requires the longer-term moving average to begin turning in the direction of the crossover prior to entry.
Using CQG, the programming code for the Ichimoku two moving average crossover system is written in this way:
Long Entry and Short Exit:
MA(@,Sim,9)[-1] > MA(@,Sim,26)[-1]
AND MA(@,Sim,26)[-1]> MA(@,Sim,26)[-2]
Short Entry and Long Exit:
MA(@,Sim,26)[-1] < MA(@,Sim,9)[-1]
AND MA(@,Sim,26)[-1] < MA(@,Sim,26)[-2]
Table 3.3 presents the backtested portfolio results from December 31, 1992, to December 31, 2002, for this system.
Notice how employment of the Ichimoku’s whipsaw filter led to a massive deterioration of the overall rate of return. Assuming $200,000 equity under management, our annualized rate of return drops from 8.48 percent to 1.26 percent, while the portfolio’s maximum drawdown increased from 19.98 percent to 67.72 percent. If few would be willing to endure a 35 percent worse drawdown (see Chapter 8 for details), suffering through a 67.72 percent drawdown is virtually unthinkable.
TABLE 3.3 Ichimoku two moving average crossover.
Asset Profit # Trades # Days Max Draw MDD MCL P:MD P:L Ratio %W Time %
ES -35907 118 22 -16694 1180 9 -0.63 0.62 23.73 100
TY 17622 103 25 -19466 1675 12 0.91 1.29 33.98 100
ED 10795 67 38 -5041 1411 9 2.14 1.96 31.34 100
SF 15325 110 24 -29062 1405 7 0.53 1.16 39.09 100
JY 27687 98 26 -62075 1934 7 0.45 1.23 45.92 100
CL 4210 124 21 -25260 1547 14 0.17 1.06 33.06 100
GC -14380 112 23 -29520 2327 15 -0.49 0.67 29.46 100
S -13862 99 26 -27875 2378 9 -0.50 0.76 30.03 100
LH 23230 103 25 -19700 965 9 1.18 1.46 29.13 100
CT -9605 121 22 -49265 1916 11 -0.19 0.9 27.27 100
Total 251 1 5 1055 24.5 - 153425 2726 19 0.16 1.07 32.13 1 00
Note: All trade summaries include $100 round-turn trade deductions for slippage
and commissions. Data source: CQG, Inc.
Trend-Following Systems
53
THREE MOVING AVERAGE CROSSOVER

As you may recall from the discussion in Chapter 2, the three moving average crossover differs from the simpler two moving average crossover in that it allows for neutrality.
Using CQG, the programming code for a typical three moving average crossover system is written in this way:
Long Entry:
MA(@,Sim,9)[-1] > MA(@,Sim,26)[-1] AND MA(@,Sim,26)[-1] > MA(@,Sim,52)[-1]
Long Exit:
MA(@,Sim,9)[-1] < MA(@,Sim,26)[-1] OR MA(@,Sim,26)[-1] < MA(@,Sim,52)[-1]
Short Entry:
MA(@,Sim,9)[-1] < MA(@,Sim,26)[-1]
AND MA(@,Sim,26)[-1] < MA(@,Sim,52)[-1]
Short Exit:
MA(@,Sim,9)[-1] > MA(@,Sim,26)[-1] OR MA(@,Sim,26)[-1] > MA(@,Sim,52)[-1]
Table 3.4 presents the backtested portfolio results from December 31, 1992, to December 31, 2002, for this system.
Although the portfolio’s average annualized net profit shows a vast im-
TABLE 3.4 Three moving average crossover.
Asset Profit # Trades # Days Max Draw MDD MCL P:MD P:L Ratio %W Time %
ES -11605 84 21 -11530 907 9 -0.48 0.86 28.57 66.37
TY 18922 70 26 -9000 765 4 2.10 1.46 40.00 68.79
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