works by looking through the code instead of reading through the spelled-out logic
and rules.
To assure robustness and reliable results, with only a couple of exceptions, I
did all the research on 63 different markets. The entire testing portfolio consists of
the 30 stocks making up the Dow Jones Industrial Average, the 30 highest capital-
ized stocks on the NASDAQ 100 index, and five major market indexes. Because
Intel and Microsoft belong to both the Dow and the NASDAQ groups, they have
been used twice, for a total of 65 test runs per system (see below).
Because of the latest bear market, many of the NASDAQ stocks might no
longer belong to the group of the highest capitalized stocks. But this was the group
I started out with, this is the group I will continue to use. The two systems that
haven’t been tested on the complete portfolio are the relative-strength bands and
rotation systems, which have been tested on 25 markets each.
The 30 Dow stocks are: Alcoa (AA), American Express (AXP), Boeing
(BA), Citigroup (C), Caterpillar (CAT), Dupont (DD), Disney (DIS), Eastman
Kodak (EK), General Electric (GE), General Motors (GM), Home Depot (HD),
Honeywell (HON), Hewlett-Packard (HWP), IBM (IBM), Intel (INTC),
International Paper (IP), Johnson & Johnson (JNJ), JP Morgan (JP), Coca-Cola
(KO), McDonalds (MCD), 3M (MMM), Philip Morris (MO), Merck (MRK),
Microsoft (MSFT), Procter & Gamble (PG), SBC Communications (SBC), AT&T
(T), United Technologies (UTX), Wal-Mart Stores (WMT), and Exxon Mobil
(XOM).
The 30 NASDAQ stocks are: Altera (ALTR), Applied Material (AMAT),
Amgen (AMGN), Bed, Bath & Beyond (BBBY), Concord Computing (CEFT),
Chiron (CHIR), Comcast (CMCSK), Cisco Systems (CSCO), Dell (DELL), eBay
(EBAY), Flextronics (FLEX), Genzyme (GENZ), Gemstar (GMST), Immunex
(IMNX), Intel (INTC), JDS Uniphase (JDSU), K L A Tencor (KLAC), Linear
Technologies (LLTC), Microsoft (MSFT), Maxim Integrated (MXIM), Nextel
Communications (NXTL), Oracle Systems (ORCL), Paychex (PAYX), People
Soft (PSFT), Qualcomm (QCOM), Siebel Systems (SEBL), Sun Microsystems
(SUNW), Veritas Software (VRTS), WorldCom (WCOM), and Xilinx (XLNX).
The five stock indexes are the S&P 500, S&P 400 Midcap, NASDAQ 100,
Dow Jones Industrial Average, and Russell 2000.
I used no futures markets for this research, for two reasons. First, up to this
point I have only worked with stocks when building the systems for Active Trader
magazine. Second, when I wrote Trading Systems That Work, I worked exclusive-
ly with futures contracts, which made the book a little hard to grasp at times for
those who only trade stocks. However, most, if not all, of these ideas should be
applicable on all types of markets, so if you’re a futures trader, you should have
little problem transferring these ideas to the futures markets of your interest.
Whether the system will be profitable on any particular market is, however, a com-
pletely different story. As already mentioned, I don’t care so much if the system is84 PART 2 Trading System Development