before we move on to the short side. The major shortcoming is that the risk–reward
ratio, at 0.64, isn’t much to brag about. With such a low number, there still is a high
likelihood that the system will lose money over an extended period of time, and
perhaps even over several such periods. Another major negative is the low per-
centage of profitable trades, which can make the system tough to trade for those
traders who demand a high percentage of winners to feel safe with the system.
Combine this with the low number of trades and the conclusion is that it can take
a long time to get out of one of those losing periods. Finally, the average trade
length is about three times too long for the system to be considered short-term,
according to the definition used in this book. However, in Part 3 the average trade
length still can do us some good, when we try to use this system as a filter for the
other short-term systems.
Moving on to the short side, Table 12.6, which shows the results from the
original system tested on our new markets, indicates this can be a tough cookie to
play with. An average profit of $845 and only 20 percent profitable trading
sequences signal we have a long way to go with this baby.
As with the long side, I started out testing the system without the trailing
stop. Again, a slight loss in performance occurred, but not enough to justify keep-
ing the stop (see Table 12.7). One good thing, compared to the long side, howev-
er, is that the short side has a rather high percentage of profitable trades (44.11
percent). When this is the case and the system is still losing money, the best place
to start is with the initial risk–reward relationship when entering the trade. In this
case, both the profit target and the stop loss are placed three average true ranges
away from the entry point.CHAPTER 12 Rotation 143
Original system, short only PercProf: 20.00
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 37.84 43.68 (30,953.23) (845.08) Market
St. Dev: 31.27 11.08 44,520.70 2,556.92 10,769.67 (0.11)
High: 69.11 54.76 13,567.47 1,711.85 9,924.60 Portfolio
Low: 6.57 32.60 (75,473.93) (3,402.00) (11,614.75) (0.33)
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 0.86 (0.12) 66,079.31 59.15 25.25 23.43
St. Dev: 0.47 0.22 29,751.43 29.15 9.73 12.13
High: 1.33 0.10 95,830.74 88.30 34.99 35.56
Low: 0.40 (0.34) 36,327.89 30.00 15.52 11.30TABLE 12.6
Short-side Trading Using Original Rotation System