you trust your system enough to take the trade this time? Only a complete test of
all signals will give you that confidence.
The same reasoning holds for the exit techniques as well. To make the most
out of the chart pattern and the exit techniques that should go with it, you need to
have done your homework before you set out to trade the pattern in question and
analyze the exits in such a way so that they work, on average, equally as well for
all signals, no matter whether each particular signal would have been traded or not.
Therefore, the testing must be done in such a way that all signals will be tested at
one time or another together with several different exit levels. To do this, trade the
system at random several times.
To accomplish this, a random number generator that produces either a 0 or a
1 will be attached to the entry rules (see the TradeStation code in Chapter 7), so
that the system only can enter when the random number is 1. For example, if the
random number for the entry had been 0 for the late-October long-entry signal in
Microsoft, that trade would not have been taken; this would have made it possible
for the system to enter on the following day. Otherwise, this would not have hap-
pened, because we would have been in a trade already, which would have left theCHAPTER 3 Probability and Percent of Profitable Trades 45
FIGURE 3.8
Microsoft trading using RNG.