Ultimate Algorithmic Trading System

The results are better than the simple 20-day breakout but worse than the 20-day
breakout with LTLF engaged, and much worse than the simple 55-day breakout.
You would think the combination of the two systems would at least beat the System 1
component. In some markets, it did. The only explanation that I can come up with
is: Let’s say a trade is entered on 20-day breakout, and turns out to be a winner.
The next 20-day breakout is ignored, but a subsequent 55-day breakout is taken in
the same direction at a worse price and with probably higher risk—a 20-day trailing
stop versus a 10-day trailing stop. Following this line of thought, let’s assume System
1 has a winner via a 20-day breakout, so the next 20-day breakout is skipped, but
the market moves sufficiently in the same direction to trigger a System 2 trade.
This trade occurs at a much worse price with an inherently higher level of risk.
Still assuming, let’s say the System 2 trade is stopped out for a large loss. The net
between the two trades could theoretically be a loss, whereas if the trader had just
traded System 1, she would have realized a winning situation. So there really isn’t
any synergy between the two components traded in this manner. Also due to the
high correlation between the two components, combining them by trading them
independently would probably still not provide any synergy. The clear winner here
is the simple 55-day breakout.
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■ Trend-Trading Battle Royale
COMPLETE TRADING ALGORITHMS
We have reviewed a few trend-following trading algorithms and their results. Thus
far, the results have shown some merit. Enough merit to continue research in
this form of trading. There are many trend-following algorithms out there, but
the perpetual question of which is the best has never really been truly answered.
Perry Kaufman has come very close in his New Trading Systems and Methods books.
Why hasn’t this question ever been fully answered in an easy-to-interpret format?
The main obstacle has always been the inability to compare apples to apples.
However, with the tools I now have at my fingertips, maybe we can finally put this
question to rest.
The following trend-following algorithms will be tested on the same data with
the same commission/slippage deduction, over the same time period and on a onecontract
basis and on the same testing platform, and we have plenty of capital. The
trend-following algorithms that will be tested will utilize their own entry-and-exit
techniques. However, a maximum loss of $3,000 will be applied to each algorithm.
I figure that most of the algorithms’ exits will occur prior to this stop level, and most
traders would feel more comfortable knowing that at this trading level, the risk of
ruin should be sufficiently small to initiate one or more of the programs.
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