Original Rules
Prepare to go long when the MAS indicator signals the trend strength in a market.
(Long positions are established in the two strongest markets.)
Prepare to go short in the market that the MAS indicator identifies as the
weakest of all three markets.
Enter tomorrow (long and short) at the open if the average trading range for
the past three days is less than the average trading range for the last 30 days.
Exit long trades: with a stop loss equal to two times the average trading range
of the three days preceding the entry;
With a trailing stop if the market goes against the trade two times the aver-
age trading range of the past three days, deducted from the previous day’s close;
With a profit target if the market moves in the direction of the trade six times
the average trading range of the past three days.
Exit short trades: with a stop loss equal to three times the average trading
range of the day preceding the entry;
With a trailing stop if the market goes against the trade three times the aver-
age trading range of the past three days, added to the previous day’s close;
With a profit target if the market moves in the direction of the trade three
times the average trading range of the past three days.Test Period
March 1991 to February 2001 (2,500 days of data per market).Test Data
Daily index notations for DJIA, NASDAQ 100, and S&P 500. A total of $20 has
been deducted for slippage and commission per trade.Starting Equity
$100,000 (nominal).System Analysis
The settings for the MAS indicator in this system are totally unoptimized. It
should be possible to improve the system’s performance by finding a better setting
for this indicator.
The system doesn’t take into consideration the direction of the trend, only
whether one market is stronger or weaker relative to the others. Thus, plenty of sit-
uations occur where all three indexes are declining, but the system still trades the138 PART 2 Trading System Development