V.10:3 (132-133): Shifting To Another Dimension by John Sweeney

V.10:3 (132-133): Shifting To Another Dimension by John Sweeney
Item# \V10\C03\SHIFTIN.PDF
Availability: In Stock

Product Description

Shifting To Another Dimension by John Sweeney

I have spent the last several months tweaking a simple trading system to provide good profits with minimal drawdowns. The underlying idea ("Settlement," November 1991 through February 1992) isn't too complicated, and it is summarized in Figure 1. Last month, 1 tried to exploit the underlying system by adding on trades to the underlying positions with a separate, simple rule: Add positions when the trending price retraces to the simple average following it (Figure 2).

This logic failed, though it was spectacularly successful in some test periods. Its maximum adverse excursion (MAE) distributions showed no distinction between winning and losing trades, even in the winning test periods, which forced me to reject the strategy for this system.


It's tough to ignore that the underlying system completely missed several good trends in different testing periods. I don't propose to "fix" that, because we'd then be back at ground zero with a whole new system to validate. Instead, I point out only that one of the ways we visually identify a trend is the consistency of price change over time. In other words, one of the ways we know we're in a good trade is that we're still in it a few days after we get started. The good ones keep going and the bad ones are usually stopped out immediately or in a few days.

After all, within the trade's horizon it can only go for us, against us or stay roughly neutral. The 30-40% success rates so common in trading systems are a reflection of that. Our task, then, is to stay with the good ones and reject the bad ones.

Just to give you an idea of how this looks, look at Figure 3. This relatively straight line is partly a result of the simple fact that it takes time for prices to change. I've found that the slope of the line changes with the trade able and its units of denomination.

*Note: $2.95-$5.95 Articles are in PDF format only. No hard copy of the article(s) will be delivered. During checkout, click the "Download Now" button to immediately receive your article(s) purchase. STOCKS & COMMODITIES magazine is delivered via mail. After paying for your subscription at store.traders.com users can view the S&C Digital Edition in the subscriber's section on Traders.com.

Take Control of Your Trading.
Professional Traders' Starter Kit
All these items shown below only $299.99!
  • 5-year subscription to Technical Analysis of STOCKS & COMMODITIES, The Traders' magazine. (Shipping outside the US is extra. Washington state addresses require sales tax based on your locale.)
  • 5 year access to S&C Archive
  • 5 year access to S&C Digital Edition
  • 5-year subscription to Traders.com Advantage.
  • 5-year subscription to Working Money.
  • Free book selection.
  • Click Here to Order