stop relates to. And the only way to achieve that is to work with percentage-based
(normalized) calculations.A Scary Futures-Market Example
If you are a commodity futures trader, one of the main obstacles when testing trad-
ing strategies on historical data is the limited life span of a futures contract. To
overcome this, various methods on how to splice several contracts together to form
a longer time series have been invented. This is especially important when it comes
to making your system reports as forward-looking as possible, and if you would
like to use the percentage-based calculations described earlier.
Basically, three different methods can be used to splice contracts together:
the nonadjustment method, the back-adjustment method, and the perpetual adjust-
ment method. The back-adjustment method can further be subdivided into point-
based adjustedand ratio adjusted. (All these methods are described in greater
detail in Trading Systems That Work.)CHAPTER 6 Quality Data 71
FIGURE 6.5
Microsoft trading data—1986. Microsoft’s performance data.