55MER447,607 0.17 0.38 –181,866 1815857.3143 19,195 –20,630 45InformationAAPL –333,607 –0.08 –0.25 –671,376 1765517.96–106 16,534 –24,524 45DELL 368,697 0.03 0.25 –583,090 20458 615.683 20,166 –23,894 45TechnologyIBM602,461 0.31 0.61 –186,724 1516020.56194 18,845 –18,541 45INTC548,007 0.11 0.45 –285,630 17361 125.2625 19,476 –22,633 45MSFT 360,154 0.05 0.30 –305,333 1685882.9826 17,951 –19,452 45SUNW 441,426 0.05 0.35 –332,903 19358 226.3310 19,800 –21,928 45TXN664,341 0.24 0.59 –229,480 1786292.1340 18,154 –20,238 55TelecomVZ251,829 0.14 0.25 –307,251 1505924.4869 16,872 –19,885 45IndicesSPX220,065 0.07 0.44 –117,4532669 1417.266 21,527 –20,642 45NDX62,582 0.03 0.12 –140,2293546 1104.331 24,195 –17,609 55–3 15,288 –38,754 55RUT –358,032 –0.08 –0.67 –379,3241937 5991.10Average 285,632 0.11 0.28 –281,230 14757 312.2650 19,191 –20,894 7612,000,00010,000,0008,000,0006,000,0004,000,0002,000,0000–2,000,000
1.15–0.20–0.11
© 2002 Lars Kestner – All Rights Reserved
FIGURE
8.30a
Volume Reversal Strategy Applied to Stocks.
235
Breakdown Statistics (Stocks)
8.30b
19911992
1993
1994
Year
1995
1997
Sharpe Ratio0.181.98–0.043.080.961.69
1996
K-ratio–0.090.420.010.770.380.31
Net Profit by Year
Performance Breakdown by YearNet ProfitK-ratio Sharpe RatioYear115,40319960.280.711,663,25019970.10–0.18–20,06419980.521.901,938,76819990.491.66578,40120000.732.481,187,6482001–0.28–0.52
Volume Reversal Strategy Applied to Stocks.
FIGURE
–500,000
0
500,000
1,000,000
1,500,000
2,000,000
1990
Net Profit562,257–171,1981,575,264935,9241,677,098–272,202
2,500,000
Year199019911992199319941995
1998
2000
2001
© 2002 Lars Kestner – All Rights Reserved
1999
Average Avg. Bars Avg. BarsLossWinLoss–16,89445–28,8233118–17,2974545–19,625–18,61645–19,86345–19,2444545–21,602–19,88545–25,66855Profitability WindowsNum. ofNumber of Profitable PercentLength Windows Windows Profitable1449163.19%1 Month1429768.31%3 Months13911582.73%6 Months13311687.22%12 Months12711993.70%18 Months11796.69%24 Months121
Volume reversal strategy5 day returns, 5 day average volumeEnter long on declines with lighter volume, enter short on rallies with lighter volume1/1/1990 – 12/31/2001Breakdown by Market SectorAverageAverageAverage Average Avg. ProfitAverageAverage AverageMarketWinK-ratio Sharpe Ratio Max DD Num Trades % Win Per ContractNet ProfitSectorEnergy–130,076542,2701500.30590.5613718,009Materials–491,269–264,898126–0.0146–0.11–9629,870Industrials–220,879352,5261500.13570.3812516,993Discretionary167360,828580.12630.3417,894–220,137Staples–265,887341,91216,8921530.14590.3398Healthcare–287,906226,8901620.06560.212517,881Financials–176,903605,87018,8061620.21610.58111Info. Tech.178378,783590.10280.3318,704–370,648Telecom–307,251251,8291500.14590.256916,872Indices–212,335–25,1291270.0120,33751–0.04
System Name:Parameters:Description:Run Dates:
Net Profit
PART 2 Harnessing the Power of Quantitative Techniques to Create a Trading Program
236
FIGURE
8.31
Saitta Support and Resistance Strategy Applied to Japanese Yen.
each time prices close below (above) the 20-day moving average of lows (highs),the solid lines are discontinuous and can jerk around often. Long entries are established as prices rise above the solid upper line, while shorts are entered as pricesfall below the solid lower line.Performance of the Saitta support and resistance strategy is strong over bothfutures and stocks (Figures 8.32a through 8.33b). Over futures markets, the strategy produces a Sharpe ratio of 0.66 and a K-ratio of 0.30. Especially strong sectors are the typical trending markets: interest rates, currencies, and petroleum.When tested on stocks, the strategy produces a Sharpe ratio of 0.51 and a K-ratioof 0.19 and is profitable in 7 out of 12 years. Top performing sectors are consumerdiscretionary, health care, technology, and stock indices.
THE VALUE OF STOP LOSS EXITSOne popular idea is to trade a 40-day entry/20-day exit channel breakout witha stop that is two times the 20-day average true range away from the entry. Thisstop is used to minimize losses much quicker than the 20-day extreme built into
CHAPTER 8 New Ideas on Entries, Exits, and Filters
237
Trading Strategy Evaluation (Futures)
Net Profit:Drawdown:K-ratio:
Portfolio Statistics10,384,705Sharpe ratio:–1,464,797Correlation to breakout:0.30Correlation to 10-40 MA:
Dec-01
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Equity
Strategy Name: Alex Saitta’s support and resistance strategyParameters:20 day average of highs and lows to determine entry pointsDescription:Enter long when closes rises above last high, enter short when prices fall below last lowRun Dates:1/1/1990 – 12/31/2001Avg.#Avg. Avg.Sharpe%Avg.ProfitofAvg.Avg. Bars BarsMarket Net Profit K-ratio RatioMax DD Trades Win Contracts Per Con. WinLossWin Loss–371 62,911 –42,696 95 32FXAD–556,990 –0.12 –0.31 –822,670 573225.19229BP162,650 –0.020.09 –495,600 513318.0869,953 –28,766 104 35179CD430,5200.050.20 –531,360 433746.1185,464 –37,471 112 422,685 104,029 –39,081 101 26JY1,808,000 0.520.89 –155,963 455313.871,306 73,042 –34,091 90 27SF1,021,900 0.270.56 –235,588 515115.71779 169,844 –39,429 172 50RatesED2,755,450 0.341.27 –144,225 245083.721,024 100,450 –44,490 117 35TY1,145,875 0.430.56 –262,266 395129.131,070 81,594 –47,365 105 36US895,9380.360.47 –311,594 415420.40–840 79,370 –40,807 92 32StockSP–451,838 –0.15 –0.25 –827,813 62279.35–93MetalsGC–229,600 –0.01 –0.09 –577,820 513744.5668,505 –47,280 97 36–266 58,291 –46,508 84 33HG–572,225 –0.08 –0.29 –854,575 583632.25–413 47,870 –45,139 110 28PL–1,172,675 –0.18 –0.55 –1,252,625 602749.21–319 59,956 –34,755 108 41SL–627,845 –0.11 –0.32 –688,930 512533.25990 168,165 –38,933 128 34EnergyCL1,490,920 0.210.58 –428,040 453330.391,041 132,918 –42,576 113 36HO1,160,195 0.240.44 –249,039 453822.78418 113,768 –39,304 106 32HU428,3410.080.17 –553,606 553119.14349 141,211 –43,153 97 33GrainsC1,400,175 0.120.45 –752,850 533875.697S95,400–0.030.04 –619,800 493931.0268,782 –43,228 105 3150W93,6380.080.04 –411,613 503053.16115,564 –45,698 132 291MeatsFC18,7350.010.01 –677,020 542441.67110,932 –35,140 113 3860LC152,300 –0.040.08 –325,284 523349.9281,797 –35,294 110 33–321 66,621 –48,907 102 33LH–552,644 –0.11 –0.25 –675,824 543332.44909 112,310 –29,679 118 43PB842,1840.180.39 –228,188 443420.60–211 79,845 –47,197 118 32SoftsCC–472,650 –0.09 –0.25 –818,580 522950.00–70CT377,4100.000.18 –717,445 473624.8183,936 –50,297 101 34–440 71,171 –47,025 117 34JO–787,103 –0.11 –0.32 –1,180,568 522734.531,570 138,621 –55,057 118 39KC898,1250.090.26 –695,531 393812.38306 104,684 –46,177 122 32LB449,8960.030.14 –436,264 463731.2866SB180,6220.050.10 –345,990 453353.8994,986 –42,139 119 37323Average 346,1570.070.14 –542,556 473533.4891,553 –40,589 107 3312,000,00010,000,0008,000,0006,000,0004,000,0002,000,0000–2,000,000
0.660.830.78
© 2002 Lars Kestner – All Rights Reserved
FIGURE
8.32a
Saitta Support and Resistance Strategy Applied to Futures.
2,000,000
2,500,000
8.32b
1991
K-ratio0.660.450.06–0.030.220.44
1992
Sharpe Ratio1.921.330.170.510.121.18
1993
Net Profit2,226,377751,131413,585–47,239529,934–86,123
1994
1996
K-ratio0.540.100.10–0.060.140.06
Year
1995
Net Profit by Year
Year199619971998199920002001
Performance Breakdown by Year
Saitta Support and Resistance Strategy Applied to Futures.
FIGURE
–500,000
0
500,000
1,000,000
1,500,000
1990
Net Profit2,729,0291,746,362187,196613,735201,3461,273,017
3,000,000
Year199019911992199319941995
MarketSectorFXRatesStockMetalsEnergyGrainsMeatsSofts
Breakdown Statistics (Futures)
AverageLoss–36,421–32,821–40,807–43,420–40,271–44,026–37,255–47,982
Avg. Bars Avg. BarsLossWin10132993092321003511634112311113711635
1997
1998
2000
2001© 2002 Lars Kestner – All Rights Reserved
1999
Num. ofNumber of Profitable PercentSharpe RatioLength Windows Windows Profitable144761.2452.78%1 Month142950.8066.90%3 Months1010.3772.66%6 Months139133108–0.0381.20%12 Months1140.4689.76%18 Months127121113–0.0693.39%24 Months
Alex Saitta’s support and resistance strategy20 day average of highs and lows to determine entry pointsEnter long when closes rises above last high, enter short when prices fall below last low1/1/1990 – 12/31/2001Breakdown by Market SectorAverageAvg. ProfitAverage AverageAverageAverageAverageAverageWinPer ContractK-ratio Sharpe Ratio Max DD Num Trades % WinNet Profit573,216490.14410.29806–448,23679,080–179,5211,199,316260.28390.5771887,972–451,83862–0.1527–0.25–840–827,81379,370–843,488–650,58655–0.1031–0.31–27358,656–410,2281,026,486480.18340.40817138,284–594,754529,738510.06360.18135108,519–476,579115,144510.01310.0516292,915107,71747330.002040.0295,541–699,063
System Name:Parameters:Description:Run Dates:
Net Profit
238
CHAPTER 8 New Ideas on Entries, Exits, and Filters
239
Trading Strategy Evaluation (Stocks)
Net Profit:Drawdown:K-ratio:
Portfolio Statistics13,571,252Sharpe ratio:–3,277,213Correlation to breakout:0.19Correlation to 10-40 MA:
Dec-01
Jan-01
Jan-00
Jan-99
Jan-98
Jan-97
Jan-96
Jan-95
Jan-94
Jan-93
Jan-92
Jan-91
Jan-90
Equity
Strategy Name: Alex Saitta’s support and resistance strategyParameters:20 day average of highs and lows to determine entry pointsDescription:Enter long when closes rises above last high, enter short when prices fall below last lowRun Dates:1/1/1990 – 12/31/2001#Avg.Avg. Avg.ofProfitSharpe%Avg.Avg.Avg. Bars BarsMarket Net Profit K-ratio Ratio Max DD Trades Win hrs (000) Per Con. WinLoss Win LossEnergySLB–770,951 –0.27 –0.37 –1,103,066 70 30 16.46–688 71,074 –46,644 95 21XOM –919,682 –0.21 –0.52 –926,41266 26 41.82–334 57,403 –38,730 88 31MaterialsAA–125,986 –0.03 –0.12 –309,983 182 53 48.38–1516,184 –20,03545DD –1,069,630 –0.19 –0.52 –1,105,120 60 25 21.13–841 64,730 –45,277 89 37IP–1,147,329 –0.21 –0.57 –1,182,684 60 20 16.92 –1,152 56,435 –38,472 98 38IndustrialsBA–109,846 –0.02 –0.05 –743,22250 30 20.84–124 88,237 –41,510 108 40GE384,5950.08 0.21 –443,39356 39 81.078480,336 –40,797 95 26MMM –731,360 –0.10 –0.36 –801,99356 30 12.21 –1,068 41,197 –36,686 89 39ConsumerDIS–107,817 –0.08 –0.05 –643,79354 30 37.15–5591,495 –41,448 93 401,333,680 0.61 0.74 –169,97440 58 13.392,462 80,329 –31,115 103 37Discretionary GMHD789,1990.02 0.38 –483,02152 37 46.51306 105,096 –38,052 111 27WMT441,6970.07 0.24 –457,39548 38 37.1422894,567 –43,184 115 30ConsumerG201,6460.02 0.10 –340,30050 38 35.298871,513 –38,842 112 26KO254,1740.07 0.11 –513,21848 38 27.2020084,096 –41,770 105 35StaplesMO1,008,304 0.23 0.49 –330,85645 40 25.96846 115,989 –40,715 121 30PG–53,104 –0.06 –0.03 –495,59658 34 19.34–9667,276 –38,255 90 31HealthcareAMGN 2,728,074 0.16 0.74 –349,76539 41 46.381,512 231,895 –42,396 128 42BMY276,3660.06 0.13 –727,73055 27 33.96130 117,146 –37,873 116 30JNJ723,1200.12 0.33 –409,39642 33 31.00545 130,164 –39,728 132 41PFE1,228,493 0.22 0.57 –375,69744 36 72.71391 141,733 –36,349 117 39FinancialsAIG84,8820.03 0.04 –485,37551 33 44.8538103,422 –49,171 104 34FNM61,365 –0.02 0.03 –561,89555 31 21.215777,784 –33,039 98 35MER158,6990.03 0.07 –473,47652 31 50.4264113,997 –45,975 113 33InformationAAPL310,4170.09 0.14 –218,12543 37 18.5939787,668 –40,206 108 44DELL 1,113,312 0.14 0.36 –789,90548 27 457.6152218,525 –48,521 141 34TechnologyIBM696,6690.12 0.35 –432,42544 34 15.80891 114,666 –37,958 124 39INTC 1,870,480 0.32 0.69 –338,16548 35 110.94350 177,521 –37,236 112 35MSFT912,7500.12 0.36 –506,06050 36 75.82241 143,165 –51,962 129 21SUNW 1,092,793 0.05 0.45 –565,57545 49 214.5711196,673 –45,785 100 33TXN624,8