Index

account equity, 294, 295, 361

adjusted gross profit, 94

ADX (average directional index), 31, 66, 156, 191

18-day, 160

burst, 155, 157

compared to RAVI, 67–69

filtered system, 170, 191

rising, 218–221

ADX>30 system, 218–221

antitrend bottom-fishing, 176

antitrend trading strategy, 70–73, 160–165

Apple Inc. (AAPL), 337, 338

Ariba, Inc., (ARBA), 32

attention to detail (A2D), 364, 365, 366

attribution theory, 363–365

average, 24

average trade:

data, 91, 92, 93

defined, 42–43

Babcock, Bruce, 198, 298

Balsara, Nauzer J., 286

bar chart, 15, 16

Barclay index, 326

barrier, 208, 227

benchmark, return efficiency, 326

benchmark, trading program, 11

bet size, 43, 287

changing of, 287, 288, 299

betting strategies, 298–301

bootstrapping, 346

bottom-picking pattern, 175–183

profitability of, 177, 181

rules, 176

breakout system, 44, 51

Brent Crude, 18, 19, 194, 195

brute-force trend-following, 6, 7

buy-and-hold strategy, 190

Caterpillar Tractor, 182

CB-PB (channel-breakout pullback), 145–155

difficulties with, 146

central limit theorem (CLT), 280

Chande trend index, 31–32

Chande, Tushar S., 33, 94, 198

channel breakout system, 145, 203, 204, 208, 212, 256

strengths of, 213

with filtering, 252

channel width, 212

CHBOC (channel breakout on the close), 78–79, 203, 204

Chicago Tribune, 324–325

choppy market, 17–18

coffee market, 79, 80, 81, 82, 83, 98

combining variance, 241–244

command button, 372–373

comparing CTAs, 260

composite equity curve, 241

computer testing, 356

Connors, Larry, 223

consolidations, 20, 22, 140, 141, 142, 214

and CB-PB, 149

broad, 128

increased frequency in, 213, 214

triangular, 20

Continuous Contractor, 89

continuous contracts, 88, 89

tests with, 90

control charts, 280–283

copper market, 18, 171

corn-live hogs, 175

correlation, 167, 173, 256

cotton market, 38, 061

CRB index, 326

crude oil futures, 50, 173

Csikszentmihalyi, Mihaly, 366, 367

cumulative frequency distribution, 81, 131, 134

curve-fitting data set, 44–46

curve-fitted system, 50–54

rules, 50

cyclic market, 18, 19

data, in-sample, 96

data, out-of-sample, 96

data scrambling, 346–352

limitations of, 354

DAX index futures, 37, 38

deterministic trading systems, 44

diary, 12, 362, 363, 371

discretionary initial stop, 77

discretionary traders, 8, 102, 326

diversification, 10, 60, 242, 327

empty, 327–329

through multiple markets, 60–l2, 248

DMI (directional movement index), 253

drawdowns, 93, 256, 295

calculation, 302

maximum intraday, 56, 92, 93

mutual funds, 309

projecting, depth, 295–298, 301

projecting, duration, 310, 331

stocks, 308, 309

with account equity, 247, 249

drawdown strings, 301, 302

dual-moving average system, 44, 60, 89, 170

dynamic indicators, 31, 33

early-bird special, 6, 7

efficient portfolio, 259

emotional expectations, 369–370

entries, into major trends, 360

entry signals, 121–124, 138–139

entry strategies, 244, 255

equity analysis, 247, 248

equity-curve, 61, 62, 178, 179, 188, 189

and profits, 238

monthly, 245–248, 304

of 65sma-3cc model, 237

smoothness of, 144, 145, 232–237, 242–244, 294

Eurobund, Eurex, 27, 28, 29, 30, 33, 35

Eurodollar, 95, 95, 97, 98, 173, 227

exit, decision tree, 112

exit strategies, 77, 112–117, 144, 151

and equity curve, 250

tests of, 245

exit, volatility, 204

expectation, formulation of, 42

exponential distribution, 310–311, 331, 332, 333

exponential moving average, 26, 27, 218

extraordinary opportunities, 183

false signals, 122, 138

fast-D moving averages, 71

fast-K, 71

filter, 139, 223, 227, 251, 253, 254

for reducing trades, 141–143

initial stop as, 133–135

of entry signals, 122, 138

to reduce false breakouts, 252

fitted normal distribution, 128, 130, 167

flow, 366

foreign currency markets, 85, 167

frequency distribution, 128, 130, 165, 166

fundamental information, 15, 101

futures contracts, combined, 88

gain/pain ratio, 270, 278, 333

global trading, 85

goal-setting, 365–366

gold, 166, 296, 297

gold-bond system, 170–173

gold-copper-bond, 171, 172

hard-dollar stop (see initial stop), 59, 239

Harlow, C. V., 14

head-and-shoulder price pattern, 22–23, 24

Heating Oil futures, 103, 106, 108

historical tests, 91, 171

hot button trading, 6

Hotelling-Pabst test, 336

IMM (International Monetary Market), 49

inflation, 167, 169, 170, 171

initial money-management stop, 58, 59, 76, 82, 134, 137

in reducing drawdown, 132

volatility based, 136

initial stop (see initial money management stop, money management stops), 76, 132, 144

criteria for, 77

for risk-control, 137

varying of, 80, 81, 136, 137

Intel Corp. (INTC), 337, 338

intermarket signal, 175

intermarket trading system, 166, 170, 174

internal attributors, 1, 364

internal factors, 363

International Traders Research (ITR), 261

interval performance, 296, 297

intuitive understanding, 150

Irwin, Scott H., 259

Janus Twenty mutual fund, 195, 196

Japanese Yen, 49, 174–175, 183

Jessen, Raymond J., 261

Kroll, Stanley, 33, 94, 198

Le Beau, Charles, 124, 150

leverage, calibration, 324, 325

leverage, effect of changing, 307

LIFFE Long Gilt futures, 23, 24

linear logic, 55

linear regression analysis, 44–47, 61, 232, 234, 236, 254, 258, 294

for standard error, 299

to measure smoothness, 234

liquidity, 85

live-hogs market, 136, 174, 175

long-bomb pattern, 225, 227, 228

loose stop, 77–80, 83

low-risk entry, 154, 224

Lucas, David W, 124, 150

MAE (maximum adverse excursion), 77, 131, 132, 133

marathoners, 369

MAR (Managed Accounts Report) CTA Discretionary index, 326

market bottoms, 20, 22, 226, 227

market data, types, 15

market intuition, 229

market momentum, 27, 28, 67, 155

double-smoothed absolute, 66, 68

market position,

flat, 101, 111

long, 111

short, 111

market-specific systems, 175, 180

market volatility, 152, 292

when placing stops, 77, 206, 207

Martingales, 269

MATIF Notional Bond, 195

matrix of mental states, 367, 368

matrix of trader reactions, 13, 371

maximum drawdown, 81, 203, 297, 304

maximum intraday drawdown (MIDD), 56, 142, 211, 240, 242

MAXO (moving-average crossover), 71, 72, 73

measured objectives, 21

mechanical system, 8, 9, 41, 42, 62–63, 201

mental focus, 363

mental imagery, 368, 369

mental states, 372

MFE (maximum favorable excursion), 129, 132

Microsoft Excel, 128, 215, 236, 331, 345, 371, 372, 373

MIDD (maximum intraday drawdown), 80, 185

Milan Index Futures, 21, 35

momentum divergence, 28

momentum oscillators, 27, 70, 139

momentum trend system, 192

money-management, 84, 289–295, 295, 298, 358

stops, 58, 59, 76, 77–84, 136–138

monthly equity changes, 249, 253, 295–298

moving-average crossover system, 26, 55, 71, 95, 176

moving averages, 25–27

exponential, 26, 27

simple, 26

weighted, 26, 27

MSCI EAFE index, 325

multiple contracts, 55–57, 158, 187, 189, 191, 192, 226, 292

and performance improvement, 292–294

in a single market, 85

in each market, 144, 145

mutual funds, 308, 309, 339

risk, 308, 339

NASDAQ index, 309, 337

negative correlation, 235, 237

with gold and bond market, 172, 173

net profit analysis, 153, 250–251

in system testing, 91, 92, 93

with barrier, 208–211

net profit factor (NPF), 329–333

New Technical Trader, 33, 94

no-exceptions policy, 358

nonlinear logic (trade sizing), 55

nonoptimized system, 125

normal distribution, 25

normalizing returns, 265, 267

Omega Research, 33, 34, 36, 58, 70, 91, 147, 149, 163, 177, 192, 226, 238, 247

one-contract strategy, 225

OPEC (Organization of Petroleum

Exporting Countries), 99

optimization, 73–77, 95

overbought, 27

overfitting, 99

overlapped sample, 261, 264

oversold, 27

overtrading, 59, 289

paper-trading, 356

Pardo, Robert, 198

pattern-based system, 175, 225

payoff ratio, 287, 288, 289

peak-to-valley drawdown (PVDD), 304, 305, 306

performance, analysis, 272, 273

performance comparison, 265, 329

performance measurement, 259

performance update, 187, 199

65sma-3cc system, 187

CB-PB system, 199

extraordinary opportunity system, 200

gold-bond system, 199, 200

S&P-500 bottom fishing system, 199, 200

trend-antitrend system, 199

personal responsibility, 364, 365, 366

portfolio performance, 289

portfolio rotation, 262, 263

portfolio size, 196

positive expectation, 42, 43

positive self-talk, 369

price bands, 29

price-based criterion, 55

price channel, 28

price patterns, 175, 225, 350, 351

double bottom, 20, 109

double top, 20

head-and-shoulder, 22–24

rectangle, 22, 23

triangles, 20

price range, 352–353

breakout system, 10

probability of winning, 43, 286, 358

profitability, 91–94

profit factor, 91, 153, 156

with T-AT, 165

pullback system, 221

Pwin (probability of winning), 43

random walk theory, 16

range-location oscillator, 27, 70

Raschke, Linda Bradford, 223

RAVI (range action verification index), 67, 139–143

filter, 139, 141–143

recovery factor (RF), 93

rectangular price pattern, 22, 23

reentry market conditions, 164, 240

regression analysis, 237, 241

regression calculations, 238

relative score, 333

relaxation techniques, 368

resistance, 36

return efficiency, 261, 264, 270, 329, 339

benchmarks, 324–327

return generation process (RGP), 5–7, 259, 324, 326

return retracement ratio (RRR), 270, 273, 276

return to support, 221

risk control, 12, 58, 84, 317

and initial money-management stops, 137

strategy, 12, 58, 361

with T-AT, 160, 161

risk in stocks and mutual funds, 337

risk of ruin, 9, 43, 185, 286

calculations, 286–289

risk premium, 43

risk-reward ratio, 236, 241

risk, types of, 64

robust systems, 10–11, 44, 48, 53–55, 100

rolling 3-month return efficiency (R3RE), 271, 277, 327

rollovers, 87, 88, 89

RSS (residual sum squares), 232

rule of two, 370

rules, brittle, 100

rules, number, 47

Russell 1000 Value index, 325

Russell 1000 Growth index, 325

Russell 2000 Growth index, 326

Russell 2000 Small Cap index, 325

65sma-3cc model, 121–144

and small drawdown, 296

tests of, 238–240, 242, 245

weaknesses of, 127, 129

with one-way entries, 247

S&P-500, 37, 176–181, 184, 326

sampling with replacement, 344, 345

Schneeweis, Thomas, 326

Schwager, Jack D., 198, 259, 268, 270, 273, 298

score, drawdown, 333

score, duration, 333

score, expected return, 334

score, relative, 333

selectivity, 102, 104, 107, 108, 110, 111

self-correcting system, 78, 140

sensitivity, 102, 104, 106, 108, 110, 111

Sharpe Ratio, 267–271

modified, 269

single-contract system, 292, 293

slippage, 71, 101, 203, 227, 247, 360

slow exit, 226

SMY (system-market-year), 100

software, 90–91, 94, 137, 218

Spearman’s rank correlation test, 261, 335

Spurgin, Richard, 326

standard deviations, 24, 25, 57, 254

of equity changes, 249, 290, 296

of profits, 43, 127

standard error (SE), 61, 62, 245

and equity curve smoothness, 233, 234, 294

for joint equity curve, 243

standard normal distribution, 25, 127

Stewart, Blair, 14

stochastic oscillator, 27, 70, 223

adaptive, 34, 35

stocks, trading, 189–193

Stone, H. L., 14

stop orders, 90

strategies,

anti-trend, 105, 107

breakout, 107, 108

event-based, 109

pattern based, 109, 110

trend-following, 103, 104

strategy, entry, 101, 103

strategy, exit, 101

stress, 368

subsector returns, 256, 257

Sugar #11 contract, 22

support, long term, 36

susceptibility, 102, 104, 107, 109, 110

sustainability, 102, 104, 107, 109, 110

Sweeney, John, 130

swing moves, 18

Swiss Federated Bond, 99

Swiss Franc, 47, 60–62

SWOT (strengths, weaknesses, opportunities, and threats), 366

symmetrical trading system, 55

synthesizing equity curve, 256

synthetic data, 343, 346, 347, 353

system,

design, 183, 289, 358

implementation, 356

overfitted, 96

performance, 248, 296

sector specific, 98

system testing, 344, 355, 356

pitfalls, 95

System Writer Plus, 58, 70, 177, 238, 247

2-percent of equity initial stop, 77

2-percent rule, 59

2-percent stop, 301 10-year T-note market, 55, 61

TASS CTA index, 326

T-AT (trend-antitrend), 160–165

technical entries, 102

technical information, 15, 101

technical traders, 102

Tech Tools, Inc., 89

test data, choosing, 88–90

testing patterns, 228

tests, 91–94, 160, 171–173

in correlated markets, 174

of long-bomb, 226

of system, 88, 91–93

Tewles, Richard J., 14

tick barrier system, 146, 208–210

acting as filter, 218

tight stops, 78–82, 239

Tom Berry’s Portfolio Analyzer Software, 247

TOPS COLA, 10, 165, 226

total performance score (TPS), 334

traceability, 359, 363

trader’s mountain, 1–2

trader’s psychology, 101, 364–365

trade sizing algorithm, 186, 191, 192, 292

TradeStation, 34, 36, 91, 147, 149, 163, 226

trading beliefs, 12, 40–41, 95, 356

trading frequency, 214, 217

trading plan, 361–362, 366

trading range, 17

trading rules, 50, 176, 177

trading strategy, 66, 247

trading system, 4, 9

design of, 41–42, 44, 46–48, 77, 86

tests of, 100, 101

trailing exit, 145, 204, 215

trailing stop, 84, 129, 154, 178, 203, 204, 215, 241, 249

trend changes, 175

trend-following systems, 26, 92, 120, 121, 155, 160, 164, 178

brute-force, 6, 7

long-term, 149, 154

selective, 7

strategies, 69–72, 103, 104

trendiness indicators, 31, 67

trending market, 16, 66–70

T. Rowe Price and Company, 325

t-test, 215–219

uncorrelated markets, 61

unemployment data, 109, 110, 111

unforced errors, 364

Union Carbide, 182

upside crossover, 71, 170

U.S. Bond, 48, 69, 71, 72, 134, 136, 140–142, 150, 160, 170, 210, 213, 296

variable-contract strategy, 55–58, 224–226, 292–294

Veritas Software Corp., (VRTS), 192, 193

VIDYA (Variable Index Dynamic Average), 33–35

volatility, 55–58, 137, 277, 292

volatility-based barrier, 212

volatility-based stops, 81, 83, 136, 137, 144, 204–208

volatility-based system (VOL), 295–297

volatility breakout system, 97

volatility-exit, 204, 206, 210, 218, 240

weighted moving average, 26

whipsaw losses, 78–79

whipsaw signal, 141

whipsaw trades, 213

Wilder Jr., J. Welles, 66, 139, 253

win-loss ratio, 223, 228

winning edge, 363

winning intervals, 250

winning percentage, 287, 288

winning trades, 91–93, 126, 154

yardstick, 238, 265