CHAPTER 28
Combined Money Market Strategies
With all the bits and pieces in place, let’s bring things to a conclusion by looking
at a few combinations of our short-term systems and long-term filters, when test-
ed using dynamic ratio money management. In doing so, we will try to optisize
most of them in relation to the Sharpe ratio. That is, we will try to come up with
the fictive fto risk per trade in relation to the distance between the money man-
agement point and the entry price for each market in each trade, which gives us
the highest possible return in relation to the standard deviations of the returns.
Remember that the money management point will be placed four true ranges
away from the entry price only so that we can calculate the number of shares to
buy and the amount of the available capital to tie up in the trade. The actual risk
(f) per trade will be less and vary with the behavior of the market, in accordance
with the stop and exit rules for each version of the systems.
To do this, I have used the same type of tables and charts that are featured in
the systems lab pages in every issue of Active Tradermagazine. Unfortunately, the
Sharpe ratios are not shown in any of them, but will be mentioned in the text after
they have been derived from each strategy’s summary table, similar to that depict-
ed in Figure 27.2. In those cases where I haven’t optisized in accordance with the
Sharpe ratio, it still will be mentioned for comparison purposes.
Also, remember that we don’t have to optisize in relation to the Sharpe ratio,
but could just as well have decided to focus on any of the other performance param-
eters in Figure 27.2, such as the total return, the profit factor, the drawdown or the
flat time, or any combination or compromise between two or several of these and
other variables.
When looking at these strategies, this is also the first time we will take a clos-
er look at the drawdown and use it as an input in our evaluation process. We have
343Copyright 2003 by The McGraw-Hill Companies, Inc. Click Here for Terms of Use.