Figure 2.7 The effect on profits of changing the number of days of delay in accepting a crossover signal of a 3-day SMA by 12-day SMA system is highly dependent on the delay.
The first rule is a typical breakout system entry rule, albeit for a breakout over prior 50-bar trading range. The second rule is a volatility-inspired sell rule. The idea was to sell at a point five ticks below twice the previous day's trading range subtracted from the previous low. This will typically be triggered after a narrow-range day, if the daily range expands on die downside due to selling near an intermediate high. The third rule is a time-dependent exit rule, optimized by visual inspection over the August contract. The idea behind time-based exits is that one expects a reaction opposite the intermediate trend after x days of trending prices. Rule 4 merely reinforces rule 3 by not only exiting the short position but putting on a two-contract long position at the close. Rule 5 is a conscious attempt to sell rallies during downtrends. In this case, limit orders were used to sell, to avoid slippage. These rules assumed diat as many as nine contracts could be traded at one time, using a $1,000 initial money-management stop.
The results of the testing are summarized in Table 2.3, page 27. The first clue that this may be a curve-fitted system is the number of
26 Principles of Trading System Design