Trading Systems and Money Management : A Guide to Trading and Profiting in Any Market

shares traded, and the more shares traded, the larger the profit and loss potential in

any individual trade.

Most likely, we need to look into a combination of the two solutions. With the

trades being too short, the profit potential for any individual trade might be too

small to make up for the costs of trading to make any of these strategies worthwhile.

STRATEGY 6

 Long-term filter: RS system No. 1


 Short-term systems: The stop-loss version of the expert exits system


 Markets: 28 Dow stocks, 30 NASDAQ stocks for a total of 58 symacs

The conclusions we came to for Strategy 5 also can be made for Strategy 6,

except the results are a tad better for this strategy, with an average annual return

of 4.86 percent, a maximum drawdown of 17.5 percent, and a Sharpe ratio of 0.53

(0.23 for Strategy 5). In this case, the fictive risk is set to 1 percent per trade,

which results in a maximum equity of close to $1.9 million (see Figure 28.8) and

only one drawdown surpassing 3 percent (see Figure 28.9) before the bear market

sets in.

The important lesson to be learned from these two strategies is that there is

no guarantee that the system will work as intended, even after we have gone

358 PART 4 Money Management

FIGURE 28.8

The equity curve for Strategy 6.