enter into a trade. Unfortunately, however, most likely this will also increase the
time spent in the market and the number of markets being in a trade at once.
Table 9.4 shows what happened when the required strength was lowered to
0.95 (as opposed to the original strength of one), meaning the relative-strength and
volume conditions for entering have been relaxed quite a bit. Thus, either one of
the original conditions doesn’t have to be completely fulfilled. This did improve
performance quite a bit. The average profit per trade came out to $1,300, with the
risk–reward ratio at 0.93, which is very good. These good numbers also found con-
firmation from high profit and risk factors, which both have their lower standard
deviation boundaries above one and zero, respectively. The average trade length
came out close to 20 days, which is what we’re looking for. The only negative is
the high percentage of time spent in the market. Over 70 percent is a little too
much, but because this system will primarily be used as a filter for other systems,
we will live with this number.
It seems that decreasing the required strength for the entry even further
would continue to improve on the results. However, decreasing the required
strength too much soon will result in a system that keeps us in a trade in all mar-
kets all the time, and the purpose behind the system will be lost. Therefore, I will
not experiment with this number any further, but only conclude that a system with
a 20-day lookback period and a required strength of 0.95 produces the types of
trades we’re interested in, and I’ll settle for this version.
Repeating the research, trading both the short and the long side of the mar-
ket, did not produce good results at all. Therefore, for now, this system will remain
long only. Perhaps the short side still can work as a filter for other systems tradingCHAPTER 9 RS System No. 1 109
Long only: No stop loss, 20-day lookback,
strength minus five PercProf: 88.33
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 148.95 36.53 165,028.79 1,300.99 Market
St. Dev: 34.42 4.83 147,743.71 1,395.89 11,312.66 0.10
High: 183.37 41.36 312,772.50 2,696.88 12,613.65 Portfolio
Low: 114.53 31.70 17,285.07 (94.89) (10,011.66) 0.93
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.51 0.32 85,968.44 39.60 70.99 19.89
St. Dev: 0.46 0.28 39,057.74 22.04 5.19 4.20
High: 1.97 0.60 125,026.18 61.64 76.18 24.09
Low: 1.05 0.03 46,910.70 17.56 65.80 15.69TABLE 9.4
Lowered Relative Strength