Time: 4/82-7/95

Figure 4.39 Equity curve for bottom-fishing pattern (9/82-7/95) with X = 1 and /= 0 (aggressive trades) for SScP-500 data with rollovers. Initial money man­agement stop was $2,000.

Figure 4.40 The bottom-fishing pattern with X = 4 and / = 3 picked off the im­portant December 1994 bottom.

A Pattern for Bottom-Fishing137

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Figure 4.41 The bottom-fishing pattern with X = 1 and Y = 0 entered the mar­ket closer to the December 1994 bottom.

You can try a variety of exit strategies. Instead of an exit on the close of the twentieth day (case 1), use a trailing stop on the 5-day low after a $1,000 profit on the trade (case 2). Case 2 with X = 4, Y •= 3, a $2,000 initial stop, and $100 for slippage and commissions from Febru­ary 12, 1988, through July 10, 1995, had a profit of $59,025 over 44 trades (45 percent winners) with a drawdown of-$7,625. You can com­pare these data to the second row in Table 4.20 (case 1). Thus, the new exit strategy produced approximately the same profits, but with a smaller drawdown and more winners. The equity curves for case 1 and case 2 are shown in Figure 4.42. You can see that case 2 has shallower draw­downs than case 1.

To check the basic validity of the bottom-fishing pattern on other markets, we must modify the pattern slightly to make it more general. Values ofX= 0.1 and Y = 0 are chosen in order to test across many mar­kets. A trend-following exit, at the lowest low of the last 20 days, was chosen because not all markets are as dynamic as the S&P-500 market. The entry is switched to above the high of the signal day, instead of buy­ing at the next days close, to reduce the number of entries in down­trends. The initial money management stop is $2,000, and as usual, $100 is deducted for slippage and commissions. The pattern uses all available data from January 1975 through July 1995 using continuous contracts on 17 markets. The results are for trading one contract at a time.

138 Developing New Trading Systems

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