7880.07 –0.02 –585,1765666 50.954837,695 –66,271 32LH41,396 –0.04 0.02 –584,9885171 32.923437,186 –85,493 40PB69,460 –0.03 0.03 –596,3245961 20.6311041,777 –59,561 31SoftsCC352,3800.07 0.18 –744,0006572 49.8511133,826 –68,306 26CT –1,130,720 –0.10 –0.55 –1,219,170 4965 24.48–943 31,439 –125,743 29JO604,9880.08 0.28 –506,8505668 36.4030241,251 –52,846 36KC–774,656 –0.07 –0.27 –1,763,156 5062 11.73–1,057 42,592 –102,093 37LB221,8640.06 0.07 –1,225,360 6574 33.658642,963 –110,214 32SB–407,613 –0.05 –0.21 –666,5575064 52.82–147 31,382 –77,420 33Average –490,130 –0.07 –0.24 –999,165 4858 33.74–413 37,496 –81,459 340–2,000,000–4,000,000–6,000,000–8,000,000–10,000,000–12,000,000–14,000,000–16,000,000
–1.08–0.75–0.74
© 2002 Lars Kestner – All Rights Reserved
FIGURE
8.24a
Adjusted Stochastic Strategy Applied to Futures.
8.24b
199119921993
1994
K-ratio–0.330.14–0.890.30–0.62–0.24
1995
Year
AverageLoss–72,622–80,719–111,663–75,787–87,893–85,420–71,603–89,437
Avg. Bars Avg. BarsLossWin36942584301303810936953610236883298
1996
1997
1998
2000
2001
© 2002 Lars Kestner – All Rights Reserved
1999
Num. ofNumber of Profitable PercentSharpe RatioLength Windows Windows Profitable5840.28%–0.871 Month14448–0.2033.80%3 Months14235–2.4225.18%6 Months139133140.3710.53%12 Months1272–1.751.57%18 Months0–0.740.00%24 Months121
Net Profit by Year
Performance Breakdown by YearNet ProfitK-ratio Sharpe RatioYear–948,4251996–1.03–3.11–215,4891997–0.09–0.58–2,212,8691998–0.23–0.85899,6451999–0.22–1.62–1,928,1562000–0.56–1.37–976,4942001–0.11–0.71
Adjusted Stochastic Strategy Applied to Futures.
FIGURE
1990
Net Profit–3,339,489–718,754–1,069,354–1,677,855–1,730,938–729,491
1,500,0001,000,000500,0000–500,000–1,000,000–1,500,000–2,000,000–2,500,000–3,000,000–3,500,000–4,000,000
Year199019911992199319941995
MarketSectorFXRatesStockMetalsEnergyGrainsMeatsSofts
Breakdown Statistics (Futures)
Adjusted stochastic14 day Slow %K adjusted by 100 day rangeEnter long when adjusted Stochastic < 35, enter short when adjusted Stochastic > 651/1/1990 – 12/31/2001Breakdown by Market SectorAverageAverage Average Avg. ProfitAverageAverageAverageAverageWinK-ratio Sharpe Ratio Max DD Num. Trades % Win Per ContractNet Profit–670,0094854–0.10–953–0.3535,080–880,682–1,375,6693037–0.15–805–0.6628,401–1,455,865–1,172,938–115,53853–0.1174–0.07–25337,245–179,3764662–0.04–97–0.1041,352–823,455–1,118,147–605,23450–0.1558–0.26–50541,360–967,825–555,95843,13647–0.0956–0.25–197–724,582–100,19955–0.0164–0.05–539,069–1,020,849–188,960560.0068–0.08–27537,242
System Name:Parameters:Description:Run Dates:
Net Profit
224
CHAPTER 8 New Ideas on Entries, Exits, and Filters
225
Trading Strategy Evaluation (Stocks)
Net Profit:Drawdown:K-ratio:
Portfolio Statistics–20,778,783Sharpe ratio:–23,853,463Correlation to breakout:–0.32Correlation 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: Adjusted stochasticParameters:14 day slow %K adjusted by 100 day rangeDescription:Enter long when adjusted Stochastic < 35, enter short when adjusted Stochastic > 65Run Dates:1/1/1990 – 12/31/2001Avg.#Avg. Avg.ProfitSharpeof%Avg.Avg.Avg. Bars BarsMarket Net Profit K-ratio Ratio Max DD Trades Win hrs (000) Per Con. WinLoss Win LossEnergySLB–592,904 –0.17 –0.33 –863,8316360 15.64–574 25,593 –61,512 2681XOM –759,966 –0.25 –0.50 –971,8566256 40.94–307 19,638 –54,326 3171MaterialsAA–671,328 –0.11 –0.33 –743,3388937 47.92–165 40,889 –36,681 5222DD–115,579 –0.04 –0.07 –375,0346962 23.33–60 27,765 –49,645 2868IP1,357,826 0.36 0.73 –254,0136574 18.061,198 38,703 –26,538 3965IndustrialsBA–143,5530.01 –0.08 –502,5655058 18.75–28 41,704 –58,857 4280GE–175,842 –0.06 –0.09 –897,1014772 78.44–49 36,226 –108,595 37 135MMM384,9590.05 0.21 –451,5406371 13.69531 28,405 –45,592 3091ConsumerDIS–68,805 –0.02 –0.03 –415,9975068 33.6731 38,408 –78,378 3999–604,099 –0.20 –0.32 –998,0774650 12.72–989 42,139 –67,308 3099Discretionary GMHD –1,095,981 –0.11 –0.55 –1,354,864 5760 65.64–271 30,842 –89,676 2691WMT –227,825 –0.05 –0.11 –746,7005161 39.96–85 45,318 –78,923 4185ConsumerG–984,252 –0.27 –0.58 –1,076,501 4943 39.96–463 34,508 –58,258 3084KO35,0630.01 0.02 –647,3797166 24.0320 34,617 –66,393 2676StaplesMO –1,146,042 –0.24 –0.58 –1,254,682 5046 23.29–955 35,810 –71,688 3482PG–277,093 –0.05 –0.16 –807,7636359 22.44–194 33,691 –58,505 2679Healthcare AMGN –2,140,156 –0.09 –0.72 –2,503,388 5070 51.35–828 31,684 –215,598 31 129BMY –1,188,409 –0.20 –0.62 –1,430,584 4248 30.67–890 36,324 –85,118 40 100JNJ –1,138,744 –0.26 –0.60 –1,290,408 6058 37.21–523 29,131 –87,452 3079PFE–666,839 –0.20 –0.29 –1,145,233 4663 68.74–210 42,735 –111,986 33 121FinancialsAIG–652,816 –0.11 –0.36 –975,7665551 43.68–284 42,473 –69,291 2584FNM–977,855 –0.22 –0.53 –1,174,572 5655 19.56–917 22,089 –67,585 3379MER–804,586 –0.24 –0.37 –1,276,447 5058 57.37–280 41,346 –95,368 23 107InformationAAPL172,3940.00 0.08 –545,5735360 16.72251 42,065 –53,513 388357 615.88–73 42,298 –161,414 3299Technology DELL –2,256,703 –0.16 –0.57 –2,708,314 49IBM–635,526 –0.14 –0.30 –1,318,049 5357 18.11–550 43,519 –79,723 3189INTC –1,049,157 –0.18 –0.44 –1,362,731 5169 110.44–172 38,796 –145,309 35 109MSFT –779,056 –0.12 –0.28 –1,484,549 5171 79.15–187 45,886 –160,403 33 121SUNW –1,238,115 –0.16 –0.55 –1,484,312 5163 217.02–113 31,034 –118,139 4288TXN–533,220 –0.11 –0.23 –1,406,975 5867 90.68–102 39,531 –109,354 3391TelecomVZ–264,199 –0.11 –0.15 –667,0115056 21.76–221 27,209 –45,580 4084IndicesSPX–815,057 –0.21 –0.44 –1,460,041 5165 2142.46–7 36,109 –111,272 29 113NDX–828,213 –0.14 –0.34 –1,231,165 5163 1861.31–9 39,448 –109,611 32 1040 64,597 –104,097 40 103RUT102,894 –0.09 0.04 –1,102,000 4663 4748.26Average –611,141 –0.11 –0.28 –1,086,128 5560 316.14–220 36,780 –86,520 33915,000,0000–5,000,000–10,000,000–15,000,000–20,000,000–25,000,000
–0.97–0.70–0.72
© 2002 Lars Kestner – All Rights Reserved
FIGURE
8.25a
Adjusted Stochastic Strategy Applied to Stocks.
8.25b
19911992
Adjusted Stochastic Strategy Applied to Stocks.
FIGURE
1990
Net Profit–1,675,515–1,973,857–1,944,597–87,637824,850–6,655,683
3,000,0002,000,0001,000,0000–1,000,000–2,000,000–3,000,000–4,000,000–5,000,000–6,000,000–7,000,000–8,000,000
Year199019911992199319941995
19931994
1995
Year
Average Avg. Bars Avg. BarsLossWinLoss–57,9192976–37,621405236102–71,0153493–78,571–63,7112980–125,03834107–77,41527903597–118,265–45,5804084–108,32634107Profitability Windows
1997
1998
2000
2001
© 2002 Lars Kestner – All Rights Reserved
1999
Num, ofNumber of Profitable PercentSharpe RatioLength Windows Windows Profitable14456–1.4638.89%1 Month14255–1.1938.73%3 Months40–1.2728.78%6 Months13913325–0.8518.80%12 Months170.0513.39%18 Months12712181.336.61%24 Months
1996
K-ratio–0.26–0.43–0.36–0.230.150.36
Net Profit by Year
Performance Breakdown by YearNet ProfitK-ratio Sharpe RatioYear–2,791,4381996–0.30–0.84–3,426,7501997–0.51–0.96–3,006,6161998–0.45–1.53–2,371,00419990.10–0.0872,87920000.410.811,653,2932001–1.40–4.31
Breakdown Statistics (Stocks)
System Name:Adjusted stochasticParameters:14 day slow %K adjusted by 100 day rangeDescription:Enter long when adjusted by Stochastic < 35, enter short when adjusted Stochastic > 65Run Dates:1/1/1990 – 12/31/2001Breakdown by Market SectorAverageAverageAverage Average Avg. ProfitAverageAverageAverageMarketWinPer Con.K-ratio Sharpe Ratio Max DD Num. Trades % WinNet ProfitSectorEnergy–917,844–676,43563–0.2158–0.41–44022,616Materials–457,462190,30635,786740.07580.11324Industrials21,85553670.001510.0235,445–617,069Discretionary –499,1785160–0.09–329–0.2639,177–878,910Staples–946,581–593,08158–0.1453–0.32–39834,656Healthcare–1,592,403–1,283,53750–0.1960–0.56–61234,969Financials–1,142,262–811,75254–0.1955–0.42–49435,303Info. Tech.–902,7695263–0.13–135–0.3340,447–1,472,929Telecom–667,011–264,19950–0.1156–0.15–22127,209Indices–1,264,402–513,45849–0.1563–0.25–546,718
Net Profit
226
CHAPTER 8 New Ideas on Entries, Exits, and Filters
227
1. Today’s close is less than the close five days ago.2. The close 5 days ago is less than the close 10 days ago.3. The close 10 days ago is less than the close 15 days ago.The chart in Figure 8.26 applies the three in a row strategy to the Nasdaq 100.While there is only one signal, it would appear that the three in a row strategy entersearly in the trend.Who says simple cannot work? The three in a row strategy produces strongperformance on both futures and stocks (Figures 8.27a through 8.28b). Futurestests generate profits in 10 out of 12 years. Stocks produce profits in 8 out of 12years. Strong sectors include currencies, interest rates, petroleum, technologystocks, telecom stocks, and stock indices.While I do not advocate using this idea alone as a trading strategy, the resultsdo demonstrate the value of the trading signals. The strategy can be incorporatedwith more complex techniques to produce a very profitable trading strategy.Volume Reversal StrategyAcademics, long proponents of the efficient markets hypothesis, have begun toback-test trading ideas to either verify the hypothesis or attempt to poke holes in
FIGURE
8.26
Three in a Row Strategy Applied to T-bonds.
PART 2 Harnessing the Power of Quantitative Techniques to Create a Trading Program
228
Trading Strategy Evaluation (Futures)
Net Profit:Drawdown:K-ratio:
Portfolio Statistics7,225,182Sharpe ratio:–1,480.301Correlation to breakout:0.26Correlation 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: Three in a rowParameters:NoneDescription:Enter long on three up weeks in a row, enter short on three down weeks in a rowRun Dates:1/1/1990 – 12/31/2001#Avg.Avg. Avg.SharpeAvg.Avg. Bars Bars%Avg.ofProfitMarket Net Profit K-ratio RatioMax DD Trades Win Contracts Per Con. WinLoss Win LossFXAD93,3500.07 0.05 –279,990713526.0046 59,466 –30,474 6630BP–305,925 –0.14 –0.15 –617,775803117.56–231 50,175 –28,714 5828CD44,6300.03 0.02 –477,180803345.4427 71,173 –32,460 6624JY1,307,163 0.24 0.60 –225,200823813.531,088 81,503 –25,871 6420SF939,2500.25 0.48 –270,588764915.51796 61,085 –33,914 5525RatesED2,712,475 0.18 0.93 –338,900494385.32239 108,218 –45,459 9626TY986,0000.37 0.46 –241,422723928.60485 87,283 –32,844 7222US–117,438 0.05 –0.06 –646,313743619.85–85 69,634 –42,669 7321StockSP–216,575 0.01 –0.12 –571,17574328.19–347 63,453 –34,663 6827MetalsGC–133,730 0.00 –0.06 –400,370784245.32–42 48,022 –38,528 5526HG–46,1500.01 –0.02 –775,925864131.926 53,298 –36,235 5719PL–395,640 –0.09 –0.20 –771,610893946.22–108 42,948 –36,052 4823SL–1,646,490 –0.23 –0.81 –1,712,855 992532.14536 41,728 –37,133 5422EnergyCL1,303,750 0.27 0.53 –389,560754129.59563 90,386 –35,288 6918HO118,3680.03 0.05 –559,041793824.5525 69,512 –41,568 5526HU685,7510.17 0.28 –342,153774722.18380 64,266 –40,601 5424GrainsC108,7750.07 0.05 –868,838703173.1119 96,976 –42,408 8026S213,0500.04 0.11 –451,925824330.5179 47,454 –31,139 5226W355,8380.09 0.16 –644,700893650.4782 78,336 –37,514 5721MeatsFC–63,4100.09 –0.03 –472,695843341.69–23 72,519 –37,716 6322LC78,7160.00 0.04 –395,824843550.6514 59,746 –30,406 6520LH544,9360.16 0.28 –297,264844331.00227 60,987 –33,413 5521PB259,5360.06 0.12 –472,468883520.96114 65,642 –32,022 5721SoftsCC–714,220 –0.17 –0.35 –1,066,270 822849.65–189 61,468 –36,992 7222CT89,350 –0.04