Number of rules

Figure 2.5 Adding more rules delayed entries and exits, increasing maximum intraday drawdown. Note that the horizontal scale is not linear.

today's high + 1 point on a buy stop. A $1,500 initial stop was used and $100 was charged for slippage and commissions.

The results above are for an IMM (International Monetary Mar­ket) Japanese yen futures continuous contract, from August 2, 1976 through June 30, 1995. The dollar profits are sensitive to the number of days of delay, and can vary widely due to small changes in parameter val­ues. It also does not seem reasonable to wait 12 days after a crossover for such short-term moving averages. Hence, the flattening out of the curve after a 9-day delay is of little practical relevance. The delay parameter is not robust because a small change in the value of this parameter can make system performance vary widely with markets and time frames.

Next consider the effect of nonrobust, curve-fitted rules, illustrated by the August 1995 N.Y. light crude oil futures contract (Figure 2.8, page 26). The market was in a narrow trading range during February and March, and then broke out above the $18.00 per barrel price level. The market moved up quickly, reaching the $20 level by May. A volatile consolidation period ensued through June, before prices broke down to­ward the $17 per barrel level by July.

24 Principles of Trading System Design