not done so before because the drawdown is not a core system characteristic. It
still isn’t, and we are not optisizing any of the strategies in accordance with it, but
because the latest bear market has made all the strategies lose money over the last
several months, we will discuss briefly how any eventual changes to either the sys-
tems or the strategies could lower the short-term drawdowns without also decreas-
ing the speed of the long-term equity growth.
One important distinction I try to make when tying everything together is to
look at the complete picture as a strategyas opposed to a system. Therefore, when
I talk about the strategy, I mean the entire trading machine, including the system
with its entry and exit rules, the (trend) filter, the markets traded, and the money
management. When I talk about the systems, I mean only the entry and exit rules,
and sometimes only the entry rules.
The stocks used for this testing are the same as those used throughout the
rest of the book—the 30 Dow stocks and 30 of the most liquid NASDAQ
stocks. However, because Intel and Microsoft belong to both these groups, I
group these two stocks with the NASDAQ stocks only, so that the group of Dow
stocks consists of only 28 stocks. I also won’t test any of the strategies on any
of the indexes.
In total, I will test 12 different strategies that can be subdivided into four dif-
ferent groups based on the long-term filters. The first six strategies will use the RS
system No. 1, with the number of system–market combinations (symacs) varying
between 56 and 60 (except for Strategy 4, which has 30), depending on whether
the testing uses all stocks from both groups or uses two different systems on the
same group of stocks.
Group number two is made up of two strategies tested on 60 symacs each,
using the relative-strength bands as the filter. The next two strategies use the rota-
tion as the filter and have also been tested on 60 symacs each. So have the last two
strategies that use both the relative-strength bands and the rotation as filters, work-
ing independently of each other.
To avoid becoming too redundant, I have tried to spread out the learning
experience over all the strategies, so that I won’t talk about every single aspect of
the evaluation of the results for each and every strategy. For example, we really
won’t take a closer look at the time-window return analysis until the very last strat-
egy. Hopefully, this also will entice you to jump back and forth between the dif-
ferent strategies to get better practice in how to compare them with each other. For
a few of the strategies, I also decided to leave out some of the charts and tables.
When looking at several different strategies or fund managers, it is a good
idea to compare them not only with one another but also with a few benchmark
indexes. Table 28.1 gives you the most important and basic information for the
three most commonly used stock market indexes, over the same time period as we
tested our strategies. Our goal for all our strategies is to at least do better than the
closest comparable index on every one of these evaluation parameters.344 PART 4 Money Management