of the 25 stocks in the test portfolio were not listed until very recently (such as
Amazon.com, which didn’t start contributing to the portfolio equity until August
1997). During the first year of trading, only 14 of our 25 stocks were tradable.Revising the Research and Modifying the System
Because the original testing showed some very good results, I had high hopes
that so would this second run of testing on more markets and fresher data. Table
8.1 shows that I had no reason to be disappointed, with as many as 91 percent of
all tested markets delivering a profit. The average profit per trade came out to
$1,048 and the profit and risk factors to 1.39 and 0.24, respectively. The most
important standard deviation numbers also are very low, which among other
things, results in a very good risk–reward ratio of 0.91 (1,049 / 1,149—the aver-
age profit per trade divided by its standard deviation, a more correct definition
of the risk–reward ratio). The only negative is the average trade length at 20 days
and the average time spent in the market, which both are a little too high for the
system to be considered short term. Therefore, I tried to modify the rules a bit
to make it more short term, hopefully, without losing any or as little perform-
ance as possible.
The first thing I did was to shorten the slow-trade stop to four days, but that
did not change the performance or the system characteristics all that much, which
gave a first indication that the slow-trade stop might not be needed at all. With the
slow-trade stop at its original nine-day setting, I changed the retrace period
between the most recent high and low prices to six days, expecting a larger num-CHAPTER 8 Hybrid System No. 1 99
Original system, long only PercProf: 90.77
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 140.83 34.38 122,904.33 1,048.92 Market
St. Dev: 34.87 4.35 105,868.56 1,149.15 10,311.97 0.09
High: 175.70 38.73 228,772.90 2,198.07 11,360.89 Portfolio
Low: 105.96 30.04 17,035.77 (100.22) (9,263.04) 0.91
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.39 0.24 82,151.19 39.37 69.44 20.47
St. Dev: 0.4 10.24 42,524.99 20.80 6.35 2.62
High: 1.80 0.49 124,676.17 60.17 75.80 23.09
Low: 0.98 0.00 39,626.20 18.57 63.09 17.86TABLE 8.1
Retesting the Original Hybrid System I