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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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Using CQG, the programming code for a Bollinger bands mean reversion system with ADX filter is written in this way:
Long Entry:
Close(@)[-1] XBELOW BLO(@,Sim,20,2)[-1] AND ADX(@,9)[-1] < 20
Long Exit—Condition #1 set “Price” field to:
EntryPrice(@,0,All,ThisTradeOnly)+(.0125* EntryPrice(@,0,All, ThisTradeOnly))
Long Exit—Condition #2 set “Price” field to:
EntryPrice(@,0,All,ThisTradeOnly)-(.0125* EntryPrice(@,0,All, ThisTradeOnly))
Short Entry:
Close(@)[-1] XABOVE BHI(@,Sim,20,2)[-1] AND ADX(@,9)[-1] < 20
82
MECHANICAL TRADING SYSTEMS
Short Exit—Condition #1 set “Price” field to:
EntryPrice(@,0,All,ThisTradeOnly)-(.0125*
EntryPrice(@,0,All,ThisTradeOnly))
Short Exit—Condition #2 set “Price” field to:
EntryPrice(@,0,All,ThisTradeOnly)+(.0125* EntryPrice(@,0,All, ThisTradeOnly))
Table 4.6 presents the backtested results from December 31, 1992, to December 31, 2002, for our mean reversion portfolio.
Notice that the elimination of the trend-following filter resulted in a deterioration of overall performance in virtually every category. (Compare Tables 4.5 and 4.6.) Although this is not always the case, most trend-following mean reversion systems do outperform their nondirectionally biased counterparts.
Slow Stochastics Extremes with Commodity Channel Index Filter
This mean reversion system initiates trades whenever both the slow stochastics and commodity channel index (CCI) indicators achieve extreme overbought or oversold levels. Exits occur when slow stochastics retreats from these unsustainable extremes or the failsafe stop loss level is triggered.
Using CQG, the programming code for our slow stochastics mean re-
TABLE 4.6 Bollinger bands with ADX filter, 1.25-2.5% stop loss, and profits exits.
# Asset Profit Trades # Days Max Draw MDD MCL P:MD P:L Ratio %W Time %
ES -4336 20 9 -7480 1634 3 -0.58 0.68 45.00 6.56
IEURUSD -2507 18 6 -7535 1922 3 -0.33 0.80 50.00 3.19
IEURJPY 17424 20 11 -9588 627 2 1.82 1.78 65.00 7.31
IEURCHF 7561 19 25 -8450 2002 3 0.89 1.50 63.16 17.43
IEURCAD -534 19 5 -8792 1811 2 -0.06 0.97 52.63 2.88
IAUDCAD -574 32 5 -6074 2451 4 -0.24 0.92 53.12 4.58
ICADJPY -810 25 14 -10146 1275 4 -0.08 0.97 52.00 12.19
IGBPAUD 8524 16 5 -3187 794 2 3.37 1.96 76.47 2.30
IGBPCHF -1128 22 8 -9021 2358 3 -0.12 0.94 50.00 5.85
Totals 23620 191 9.7 -14741 779 5 1.60 1.13 55.62 7.00
Note: All trade summaries include $100 round-turn trade deductions for slippage
and commissions. Data source: CQG, Inc.
Mean Reversion Systems
83
version system with CCI filter and 1.5 percent stop loss is written in this way:
Long Entry:
SSD(@,14,Smo,3,Smo,3)[-1] XBELOW 15 AND CCI(@,10) [-1] < -100
Long Exit—Condition #1:
SSD(@,14,Smo,3,Smo,3)[-1] XABOVE 30
Long Exit—Condition #2 set “Price” field to:
EntryPrice(@,0,All,ThisTradeOnly)-(.015*EntryPrice(@,0,All,
ThisTradeOnly))
Short Entry:
SSD(@,14,Smo,3,Smo,3)[-1] XABOVE 85 AND CCI(@,10)[-1] > 100
Short Exit—Condition #1:
SSD(@,14,Smo,3,Smo,3)[-1] XBELOW 70
Short Exit—Condition #2 set “Price” field to:
EntryPrice(@,0,All,ThisTradeOnly)+(.015* EntryPrice(@,0,All, ThisTradeOnly))
Table 4.7 presents the backtested results from December 31, 1992, to December 31, 2002, for our mean reversion portfolio.
Here again we see marked deterioration of performance when compared to the trend-following mean reversion systems.
Slow Stochastics Extremes with CCI Filter and Time Exit
In many ways, mean reversion systems are polar opposites of their trend-following counterparts. With trend-following systems we let our profits run and relied on so-called outliers to compensate for our low percentage of winning trades. Inexorably linked to this concept of letting profits run is a prohibition against exiting trades due to the length of a trade’s duration.
By contrast, with mean reversion systems, we can in some instances improve overall performance through the addition of a time-based exit criterion. Although in general I favor trading systems with the fewest parameters possible while still maintaining profitability, mean reversion traders should consider the introduction of time-based exits.1
84 MECHANICAL TRADING SYSTEMS
TABLE 4.7 Slow stoachastics extremes with CCI filter and time exit.
Asset # Profit Trades # Days Max Draw MDD MCL P:MD P:L Ratio %W Time %
ES -2048 36 9 -10840 2255 5 -0.19 0.90 44.44 10.96
IEURUSD 747 35 7 -11294 1549 4 0.07 1.03 54.29 8.12
IEURJPY 21675 40 8 -14852 1070 5 1.46 1.53 47.50 10.39
IEURCHF -6516 21 10 -8870 2590 3 -0.73 0.43 52.38 7.66
IEURCAD -930 35 8 -13858 1642 5 -0.07 0.98 45.71 9.03
IAUDCAD 5498 30 8 -10628 1715 3 0.52 1.33 56.67 8.23
ICADJPY 2380 36 7 -6742 1087 4 0.35 1.10 50.00 8.77
IGBPAUD -7268 33 7 -12590 973 4 -0.58 0.80 51.52 8.23
IGBPCHF 5200 30 8 -15852 2014 7 0.33 1.18 50.00 8.04
Totals 18738 296 7.9 -40490 1947 8 0.46 1.06 50.00 8.94
Note: All trade summaries include $100 round-turn trade deductions for slippage and commissions. Data source: CQG, Inc.
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