Initial Description of the Systems
Before we look at the individual systems, I would like to point out that all original
systems are completely unoptimized, and the little optimization or tweaking I
indulged in doesn’t take us too far away from the type of reasoning I used when I
put the systems together in the first place.
When it comes to finding an entry technique, I am not all that interested in
finding the most optimal parameter settings. What is more important is to find set-
tings that make sense to me and that I can live with because I understand why they
are as they are. In fact, the better you know and understand the system, the less
optimizing you need to do, at least when it comes to the entry techniques.
However, I do like to optimize the stops and the exits, but that will wait until
Part 3. For now, we will keep most of the exits in the systems as they were pre-
sented originally. If you read through this part and still are interested in finding the
most optimal parameters for the entry, you can use the techniques given in Part 3
to optimize the exits.
The original results also are presented as they were in ATM, which means
that sometimes the terminology is different from that used in the rest of the book.
For example, for the hybrid system No. 1 and the RS system No. 1, I use the term
risk–reward ratioas a ratio between the final net profit and the maximum histor-
ical drawdown. This is not a correct use of this term, and in the rest of the book,
the risk–reward ratio refers to the average profit per trade divided by the standard
deviation of all trades.
For the Harris 3L-R pattern variation system, I also use the term profit–loss
ratio. Throughout the rest of the book, this term is replaced by the (initial)
risk–reward relationship, which refers to the distances between the entry price, the
stop loss, and profit target (or final profit) when entering into a trade. The
risk–reward relationship is expressed as the profit target in relation to the stop loss,
as in “2:1,” which means that the profit target is placed twice as far from the entry
point as the stop loss. OK, let’s get to it.CHAPTER 7 TradeStation Coding 95