Trading Systems and Money Management : A Guide to Trading and Profiting in Any Market

and the more weight given to the latest closing price. A simplified formula for cal-

culating VWA looks something like this:

VWA RV * C (1 
RV) * PVWA

Suggested Markets

Stocks and index shares (SPDRs, DIAs, QQQs).

Original Rules

Prepare to go long if today’s closing price is below VWA and if VWA is lower

today than yesterday.

Prepare to go short if today’s closing price is above VWA and if VWA is

greater today than yesterday.

Enter long tomorrow if the market trades above the highest high of the pre-

vious two days. Risk 1 percent of available equity per trade.

Enter short tomorrow if the market trades below the lowest low of the previ-

ous two days. Risk 1 percent of available equity per trade.

Exit all trades: On the close, if the market does not follow through on its

move that triggered the trade, by also closing above (below for short trades) the

VWA;

If the market moves against you more than 4 percent.

Test Period

September 1991 to April 2001 (2,500 days of data per market).

Test Data

Daily notations for the 30 stocks making up the Dow Jones Industrial Average

(DJIA). A total of $20 per trade was deducted for slippage and commission.

Starting Equity

$100,000 (nominal).

System Pros and Cons

For this particular system, we took the liberty of defining the trend using hind-

sight, allowing only long trades until April 1990 and only short trades thereafter

(basically just to provide an example of how this can be done). While this type of

154 PART 2 Trading System Development