Moving on to the last of our filters, the rotation, we start by testing it on both
groups of stocks, together with the trailing-stop versions of hybrid system No. 1,
Meander system v.1.0, and the volume-weighted average system, with the fictive
risk set to 5 percent for all trades.
Although the average annual return is a tad higher for this strategy than for
the previous one, if you only have these two strategies to choose from, this is not
the preferred alternative—at least not as it stands right now, without any short-sell-
ing possibilities or other markets complementing it on the short side.
This is evident when looking at the Sharpe ratio, which equals 0.5, and a
maximum drawdown in the current bear market of 41 percent. Again, both the per-
centage of winning months and winning trades could have been higher, although
there is nothing wrong with 58 percent winning months and close to 50 percent
winning trades.
Aside from the actual size of the current drawdown, the way this strategy has
handled the bear market also leaves a lot to wish for, when compared to many of
the other strategies. The fact that it hasn’t managed to set a new equity high over
the last several months indicates that it is much more dependent on the long-term
underlying trend than many of the other strategies.
However, as long as the trend is right, this strategy works very well, reach-
ing a maximum equity peak of more than $4.5 million, with only one drawdown364 PART 4 Money Management
FIGURE 28.13
The equity curve for Strategy 9.