looking at the standard deviation numbers for the profit and risk factors, and the
risk–reward ratio based on the average profit per trade. All these numbers now
indicate that a majority of all trading sequences should produce a profit. And with
the average expected profit per trading sequence at $788.35, this system could
now help us make a good living.
Unfortunately, trading the system from the short side as well did not produce
good enough results to warrant trading from both sides. However, with a little tin-
kering, tweaking, and experimenting, you should be able to come up with some-
thing good. I dare to say that because, even though the short side seems to lower
the overall results quite a bit, the number of profitable trades still is very high,
which means the system is doing a good job identifying good setups for a trade on
the short side as well. It doesn’t work this way probably because the risk–reward
ratio going into the trade needs to be different between the two sides. Alternatively,
the short side should not be traded with limit orders, considering the inherent
upside bias in the stock market. Table 10.6 shows how the latest version of the sys-
tem behaved when traded from both sides simultaneously.
Figure 10.1 shows what the meander indicator can look like with the lines
adjusted for the long side only. Note in the series of trades that this version of the
system is still quite dangerous in that it can move considerably against the trade as
long as the volatility stays low and it avoids touching the lowest meander line. We
will try to come to grips with this later, when we will try to substitute all current
stops with a set of new ones.
If you compare Tables 10.1 and 10.5 you can see that a disadvantage stem-
ming from all the changes we made is that the average trade length increased by118 PART 2 Trading System Development
Long only: Higher target, no slack period,
one down day, 10-day lookback period PercProf: 90.77
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 200.98 52.68 138,385.04 788.35 Market
St. Dev: 55.04 4.23 102,071.61 652.0 16,378.93 0. 12
High: 256.02 56.90 240,456.66 1,440.36 7,167.28 Portfolio
Low: 145.95 48.45 36,313.43 136.33 (5,590.59) 1.21
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.38 0.17 60,164.33 31.99 44.81 9.37
St. Dev: 0.30 0.13 30,118.05 19.17 4.76 1.70
High: 1.68 0.30 90,282.38 51.16 49.57 11.07
Low: 1.09 0.04 30,046.28 12.83 40.05 7.67TABLE 10.5
Increasing lookback Period