which is the high from four days prior. The test was done on the system with the
1 percent stop and the 3 percent profit target. But because this did little to better
the results, I decided to stay with the original logic.
However, because it didn’t seem to matter where the opening and the entry
price were in relation to the trigger level, which was the high four days before the
open, it is questionable if the opening price is needed at all. What if we just enter
one day earlier with a stop order, immediately when the trigger level is hit? Tables
14.4 and 14.5 show the result from this test for the short-term risk–reward rela-
tionship version of the system.
And what do you know! As Tables 14.4 and 14.5 show, we’re definitely on
the right track here. Waiting to enter until the open following the move that actu-
ally triggered the trade did little good. After a little experimenting, the profit and
risk factors are back to relatively high levels, at least for the long-only version. The
results for the both-sides version are still a little so-so, but the way it’s improving
gives plenty of hope.
Now, there’s only one more thing to address in regards to the entry and that
is the relatively small amount of trades generated. So far, the system has required
two lower lows in a row to enter on the long side. But what would happen if we
altered that rule a bit, to only require two lows lower than a third preceding low.
Will that increase the number of trades without ruining the results? Let’s try it.
Tables 14.6 and 14.7 show that not only did this modification more than dou-
ble the number of trades, it even improved the results quite a bit—so much so, that
the risk–reward ratio for the portfolio traded on both sides now is above 1 (1.11),
which is very good indeed. Granted, this number is contradicted somewhat by the168 PART 2 Trading System Development
Long only, 3:1 risk–reward relationship, open excluded PercProf: 81.54
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 60.85 38.91 21,953.83 377.95 Market
St. Dev: 18.89 9.21 30,078.20 510.36 3,226.06 0.11
High: 79.74 48.12 52,032.03 888.30 3,604.01 Portfolio
Low: 41.96 29.71 (8,124.37) (132.41) (2,848.12) 0.74
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.39 0.20 19,873.20 16.87 5.77 3.88
St. Dev: 0.51 0.27 12,016.79 11.29 3.13 1.75
High: 1.90 0.47 31,889.99 28.15 8.90 5.63
Low: 0.88 (0.07) 7,856.41 5.58 2.65 2.13TABLE 14.4
Testing Short-term Risk–reward Relationship (1)