Tuesday, December 08, 2009

Wally Meets the Double 6s

You know me. I like simple, high probability trading set ups with minimal drawdown and performance charts characterized by a lot more winning than losing trades.
One of my favorite systems with these parameters is the Double 3s, originally posted as the Double 7s. There are a number of these posts in the archives and you can get a flavor of some typical results by checking them out .
With a 30 month lookback the optimized results for WMT are 6,6,9,6.
Different stocks and ETFs have different inherent cycles and beta, so some adjustment to the inputs is required in order to establish an attractive equity curve.
And, a funny thing has happened to many stocks and ETFs tested using this system . . . the equity curve has rolled over or gone negative as of March 09.
That's clearly not the case with WMT and although the last couple trades have been losers, the odds are now favoring a resurgence of the equity curve.
As with the PDQ models, the use of a reversing equity curve slope as a stop should be considered for any of the double 3 study candidates.


The actual trade distribution is shown below and one performance enhancing possibility that's pretty obvious is the use of a $100 stop loss (per 100 shares). That simple little risk management tool would eliminate half of all losing trades.

2 comments:

ramon said...

Hi BZB, nice work on this.

I would note however that whilst the inclusion of a stop may elimate half the losing trades, it will invariably eliminate winning trades as well. Indeed any trade be it winner or loser that has an adverse exclusion (i.e drawdown) of $100 would stop out.

bzbtrader said...

Ramon,
When I get a break I'll actually run that stop and post results . .or you could do it.