When looking at the equity and drawdown charts, some interesting observa-
tions can be made. It’s obvious that the strategy has not coped well at all with the
current bear market. However, the entire testing period leading up to the current
downturn has a very smooth and steady equity growth, with only a handful of
drawdowns surpassing 5 percent. (The equity and drawdown charts are not shown
for this strategy, but they are very similar in look and feel to those for Strategy 6.)
One reason for the poor result could be that the strategy is functioning so
badly in the current bear market that it forces us to keep the risk per trade down.
Had it functioned a little better in the bear market, it is possible that we could have
traded it a bit more aggressively and thereby also increased the profit potential dur-
ing the bull market of the 1990s. The low drawdown numbers for this period indi-
cate that we could take on plenty more risk per trade without taking the drawdowns
to such high levels as 15 to 20 percent. This is probably especially true for the NAS-
DAQ stocks, which we are trading very conservatively using the current settings.
Another reason for the poor results could be that we are not in as many posi-
tions as we should be, given our assumptions about the relationships between the
stop-loss distance, the average trade length, and the money management point. We
aimed at being in approximately 10 open positions at any one time; with 45 trades
per month, and the average trade length being close to three days, the strategy is
seldom in more than six positions at the same time.
To come to grips with this, we need to either place all the stops and exits fur-
ther away from the entry, both in terms of price and time, so that we spend more
time in a trade, or place the money management point closer to the entry so that
we increase the profit potential of each trade using the current stop and exit set-
tings. The closer the MMP, the larger the position must be in terms of number ofCHAPTER 28 Combined Money Market Strategies 357
Cumulative 12 months 24 months 36 months 48 months 60 months
Most recent: –8.00% –20.61% –16.37% –4.10% –1.72%
Average: 2.97% 8.06% 15.50% 22.43% 28.89%
Best: 15.58% 24.08% 32.20% 44.00% 57.38%
Worst: –16.34% –21.97% –16.37% –5.05% –4.73%
St. dev: 7.83% 11.95% 11.82% 13.00% 15.46%
Annualized 12 months 24 months 36 months 48 months 60 months
Most recent: –8.00% –10.90% –5.79% –1.04% –0.35%
Average: 2.97% 3.95% 4.92% 5.19% 5.21%
Best: 15.58% 11.39% 9.75% 9.55% 9.49%
Worst: –16.34% –11.66% –5.79% –1.29% –0.96%
St. dev: 7.83% 5.81% 3.79% 3.10% 2.92%TABLE 28.10
Strategy 5 Time-window Analysis