Reversing Your Losses
by John Sweeney
Last month, Settlement closed with some incomplete work: the profit and loss charts for trades added
onto the underlying system that was developed in the months prior. To finish the subject of evaluating
add-on trades, I've completed those charts by trading the add-on system for the remaining years of data —
1991, 1990 and 1988. To recap, the underlying bond trading system trades solely off the 35-day simple
moving average of closing bond prices in the December contract. The trend is determined by the 17-day
average of the day-to-day difference in the moving average. When the one-day difference is greater than
the trend, go long. When less, go short. Use a $700 stop.
The add-on idea was to wait three days to see whether the underlying trade went bad, since experience
showed that most of the bad news came quickly. The idea was to enter in the same direction as the
underlying trade on the opening of the fourth day and close when the underlying trade closes. The point
of all this was to illustrate developing a system in gory detail.