Sunday, January 4, 2009

10 Hours and Counting...

Just wanted to update. Spent most of the day just pounding through charts, getting everything checked, double checked, and then rechecking them. I printed out a fresh copy of my trade plan, made my spreadsheet to track my progress and tried to get focused. I've decided to only trade my first method for the time being. I did heavy backtesting on my "2nd method" i've developed. It did produce close to 4k in a one month period per contract which is nothing to scoff at, but I don't yet feel confident enough in it to go live with. So i'll continue to track its progress live and make a decision down the road in a month or two. However, I did an interesting backtest scenario and wanted to share the results.

Both backtests used the identical entry and exit triggers on the 2nd method. Except one only took entries that followed chart patterns, ie buying into higher highs and higher lows, and selling into lower lows and lower highs. I found the results were pretty staggering. While the gross income from trades was 200.00 lower following chart patterns, if you figured in the commissions from all the trades taken it actually came out 300.00 more profitable. Essentially the system was able to produce the same amount of profit and it took almost one half the original amount of trades. In other words, following the chart patters eliminated half the trades (half the market risk) and still produced an identical amount of profits.

Not only that, but look at the equity curves below.

No Chart Patterns:

Chart Patterns:

Note that the second image appears to have a smoother trajectory up the graph and the draw downs are much less severe. Thats why we follow the chart patterns!!!

Below is a equity curve over the same time period trading my primary method. Note how smooth the curve is... almost no drawdowns whatsoever. Thats why i'm not trading the 2nd method live yet. I don't know if the equity curve is acceptable where its at or if it needs improvement.

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