As Table 10.2 shows, this made a huge difference in the results. All of a sud-
den the average profit factor increased to 1.14 and the average profit to $239.85,
making the system quite tradable already. The standard deviations for the average
profit and the profit and risk factors also are very low, which indicates that the
results are very robust.
Concluding that it is better for the trade to run a little longer, the next step was
to get rid of the initial slack period after which the stop was tightened. Table 10.3
shows that this too increased performance a little, but the bad news is that it did so
by sacrificing some robustness and reliability, most clearly indicated by a lower
risk–reward ratio (0.90 compared to 0.93 in Table 10.2). Usually, we would go with
that version of the system that had the highest risk–reward ratio, but because this
time we’re getting rid of a variable completely, it’s worth doing the opposite. The
price we pay for a system that is slightly less curve fitted is a slightly decreased cer-
tainty of the outcome. (Not that the system was curve fitted from the beginning.)
Another performance number that could be improved a little is the percent-
age of time spent in a trade. As you can see, Table 10.3 indicates that it is close to
70 percent, which is a little too much if we would like to trade the system togeth-
er with several other systems, on a good sized portfolio of markets. However,
because we don’t have that many variables or criteria to work with, we have to add
a new one. In the final decision to keep a new criteria, that criterion needs to
improve results considerably. The criterion I decided to go with was to require that
the day before the entry should be a down day.
Table 10.4 shows the result of this version of the system. And as you can, see
this is a big improvement compared to the version in Table 10.3. The average prof-
it per trade now is $559.05, and the profit factor has now increased to 1.30. But116 PART 2 Trading System Development
Long only: Higher target PercProf: 87.69
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 465.95 48.22 95,316.78 239.85 Market
St. Dev: 122.09 3.00 96,837.43 257.05 4,720.86 0.05
High: 588.04 51.22 192,154.21 496.90 4,960.71 Portfolio
Low: 343.87 45.23 (1,520.65) (17.20) (4,481.01) 0.93
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.14 0.07 83,423.90 45.99 59.26 5.32
St. Dev: 0.14 0.07 42,437.97 34.13 4.38 0.76
High: 1.28 0.14 125,861.87 80.12 63.64 6.08
Low: 0.99 (0.00) 40,985.93 11.86 54.88 4.56TABLE 10.2
Adjusting Risk–Reward Relationship