the market—24 percent on average per stock, compared to 100 percent per stock
for a buy-and-hold strategy.
Note also that both the worst drawdown and the longest flat time happened
very early on, during the October 1990 scare. Unfortunately, it took a little longer
for the system to recover from this debacle than it did for the market itself.
However, since then, results have been very stable, with very few drawdowns
extending further than 10 percent, and since 1992, no drawdown below 15 percent.Revising the Research and Modifying the System
For the original presentation of this system, I wrote that it was just marginally
profitable for no more than 50 percent of the market tested. That was one year ago
(at the time of this writing) and, because this is a long-only system, performance
has continued to deteriorate since then. Table 10.1 shows that of all 65 markets
tested this time, 61 percent were profitable, which resulted in an average profit
factor of 1.05. What is strange with these results is that, despite the low number of
profitable markets and not-so-good performance numbers, the system still pro-
duces a relatively high number of profitable trades.
Obviously, it still does a good job identifying good trading opportunities, but
somehow a relatively large number of winners still won’t make up for the losses.
The reason may be that the risk–reward relationship between the forecasted prof-
it target and the expected stop-loss level isn’t what it should be. To explore that, I
started out by moving the profit target one standard deviation further away from
the entry price so that the initial risk–reward relationship, going into the trade,
would be 3:1 instead of only 2:1.CHAPTER 10 Meander System V.1.0 115
Original system, long only PercProf: 61.54
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 546.52 50.90 24,671.08 48.99 Market
St. Dev: 144.60 4.19 125,491.47 221.95 3,772.27 0.01
High: 691.12 55.09 150,162.54 270.94 3,821.25 Portfolio
Low: 401.93 46.71 (100,820.39) (172.96) (3,723.28) 0.22
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.05 0.02 99,648.87 66.84 51.12 3.90
St. Dev: 0.31 0.11 47,720.10 49.37 4.62 0.55
High: 1.36 0.12 147,368.97 116.22 55.74 4.46
Low: 0.74 (0.09) 51,928.76 17.47 46.49 3.35TABLE 10.1
Average Profitability Using Meander System V.1.0