sion is that something needs to be done. There are several things we could do,
such as altering the lookback period for the standard-deviation calculations, oth-
erwise making it more or less difficult for the system to generate a signal, or
altering the stop-loss and trailing-stop levels.
Let’s start by making the lookback period for the standard-deviation calcu-
lations longer. Table 11.2 shows that using a 200-day lookback period, the aver-
age profit is above zero, and the positive result is further confirmed by a profit
factor of 1.08 and a risk factor of 0.02. The results in Table 11.2 are confirmed
by additional tests with other lookback periods, which are not shown. Apparently,
a 21-day lookback period is not enough for this system to produce good results
on the long side.
Going with a longer lookback period than the original 21 days, I arbitrarily
set it to 100 days and continued the research by looking into other parameters
to examine. Table 11.3 shows what happened with the result when I altered the
standard-deviation interval for the entry to zero. With the standard deviation set to
one, as it was originally, the market we’re looking to trade needs to be relatively
stronger than 84 percent of all the markets it’s compared to. With the standard
deviation set to zero, the market we’re looking to trade only needs to be relatively
stronger than 50 percent of all the markets it’s compared against.
Making it easier to enter into the trade by requiring that the market we want
to trade only needs to be relatively stronger than 50 percent of the markets it’s
compared against improved the results considerably. The average profit is now
well above zero at $110.85, and a profit factor above 1.10 indicates the system will
remain profitable when the cost of trading is added as well. The number of prof-CHAPTER 11 Relative Strength Bands 127
Long only: 200-day lookback period PercProf: 52.00
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 85.40 35.27 13,998.08 6.14 Market
St. Dev: 51.10 9.82 46,357.47 1,109.99 4,338.73 (0.06)
High: 136.50 45.09 60,355.55 1,116.13 4,344.87 Portfolio
Low: 34.30 25.45 (32,359.39) (1,103.84) (4,332.58) 0.01
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.08 0.02 31,546.25 26.76 15.54 5.71
St. Dev: 0.48 0.34 16,273.03 16.35 6.25 0.74
High: 1.55 0.36 47,819.28 43.12 21.78 6.44
Low: 0.60 (0.33) 15,273.22 10.41 9.29 4.97TABLE 11.2
Altering Lookback Period