profitable on all markets tested as long as it works, on average, well on a majori-
ty of them.
Note that because Intel and Microsoft belong to both the NASDAQ and Dow
groups they have been used twice throughout the research, which means that the
results from these markets carry twice the weight compared to all other markets
when it comes to the final influence of the system variables. Of course, it would
have been a little better had I substituted for both these stocks other stocks in the
NASDAQ group, but because I am using so many stocks and indexes in the first
place, it doesn’t matter that much.
For example, with 65 markets, each market influences the end result by 1.54
percent (100 / 65), which means that Intel and Microsoft influence the end result
by 3.08 percent each, or 6.16 percent in total. In turn, this is only one-
sixteenth of the total weight. It turned out this way simply because this was the
way my workgroups were set up for testing my systems in Active Tradermagazine,
where I only test one group at a time.
It doesn’t take a rocket scientist to recognize that there are significant differ-
ences in the characteristics for the stocks of the Dow Jones Industrial Average
compared to the stocks of the NASDAQ 100 index. For one thing, for each system
lab, I also show the latest development for the major market indexes as a compar-
ison to the system’s results. For one of the latest systems I did (September 2002
issue, using data through April 2002), the Dow had increased by 206 percent since
September 1992, but was currently in a 31.5 percent drawdown that had lasted for
28 months. The same numbers for the NASDAQ 100 were a 302 percent increase
and a 77.5 percent drawdown that had lasted for 25 months.
We really don’t need to know why there are such differences in the behavior
between the different stocks making up the indexes. It doesn’t take much, howev-
er, to understand that the calmer behavior of the Dow is because it’s made up of
older, larger, old-economy companies that are not as sensitive to the psychologic
twists and turns of the general market as are the younger, new-technology, and
high interest rate–sensitive companies of the NASDAQ 100. Be that as it may, all
we need to acknowledge is that differences are present and we should come up
with a system that works, on average, equally as well on all markets.
As the systems were featured in Active Tradermagazine, they included the
results from using dynamic ratio money management (DRMM), which basically
means that all markets will benefit from the results from all other markets, result-
ing in a faster equity growth, a smoother equity curve, and more often than not,
lower drawdowns. The new results from the initial research do not depend on
DRMM. Instead, they include only the normalized results from investing $100,000
per trade.
Looking at the buy-and-hold performance numbers for the Dow and NASDAQ
100, we can calculate the average annual return for the two indexes to 7.5 percent
per year [((206 /100)^(1/10) 1) * 100] and 11.7 percent per year [((302CHAPTER 7 TradeStation Coding 85