after the entry in case of a high-volatility day, which hasn’t been all that uncom-
mon recently. To achieve a desired 3:1 risk–reward relationship, the profit target
then needed to be as far as 12 percent away from the entry, which, as indicated by
the trade length, is too far for a short-term system.
To see if we can make the system a little more short-term, let’s see how it will
function with a stop loss of 1 percent together with a profit target of 3 percent (for a
3:1 risk–reward relationship). Table 14.3 shows that the average profit per trade for
all long trades diminished considerably compared to the original system, as did the
risk–reward ratio for all markets, as indicated by a risk ratio of 0.58. The profit and
risk factors also decreased a great deal, but at least the profit factor is within a tol-
erable limit at this stage of the research. One worrying thing is that the number of
trades didn’t increase that much at all, despite a shortening of the average trade
length. Apparently, this is a very rare pattern, and perhaps it should be treated as
such, letting it continue to catch those longer-term moves on the long side. Let’s stick
to the short-term strategy for now, however, and see if we can improve it further.
My main criticism when I tested this system for Active Traderwas that no
criteria existed for the opening price on the day for the entry. Entering blindly on
the open might result in an entry so far away from the break through the trigger
level that the reason for the trade might have not only been negated, but also even
reversed. Making the system more short term makes it even more important to do
something about this.
To check if the results could be improved by adding some sort of volatility
criteria for the open, I altered the entry rule to require an opening price not more
than one average true range (measured over the last 20 days) from the trigger level,CHAPTER 14 Harris 3L-R Pattern Variation 167
Long only, 3:1 risk–reward relationship PercProf: 73.85
Trades PercWin NetProfit AvgProfit ProfitStD RiskRatio
Average: 64.55 37.41 15,271.85 267.46 Market
St. Dev: 15.70 7.17 24,347.84 459.34 3,483.27 0.06
High: 80.25 44.58 39,619.68 726.80 3,750.73 Portfolio
Low: 48.85 30.24 (9,075.99) (191.88) (3,215.81) 0.58
ProfitFactor RiskFactor MaxDD PercDD PercTime AvgLength
Average: 1.21 0.11 23,308.50 20.15 6.33 4.01
St. Dev: 0.31 0.18 10,809.47 9.93 2.84 1.65
High: 1.51 0.29 34,117.97 30.08 9.17 5.66
Low: 0.90 (0.07) 12,499.03 10.22 3.50 2.36TABLE 14.3
Changed Risk–reward Relationship