1998issue C061-6
Monthly changer rules specified as one mechanical procedure
A useful mechanical procedure is specified with four rule families: long and short entries, exits for winning trades, exits for losing trades, and a rule for leaving a market that is not moving. This monthly-bar case writes those families as one process, including a 31-basis-point stop distance and a two-month holding limit.
- A useful mechanical procedure is specified with four rule families: long and short entries, exits for winning trades, exits for losing trades, and a rule for leaving a market that is not moving.
- The changer long entry is a monthly close above the prior month high together with two successive prior-month low conditions that describe a recent low-to-low decline.
- A winning changer long or short is closed after one profitable monthly settlement unless that settlement is above the entry-month high or below the entry-month low, in which case the position may be held one more month.
- The initial long stop is the lesser of the prior monthly low and a 31-basis-point distance from entry, and no changer long is held more than two months.
Four rule families
A useful mechanical procedure is specified with four rule families: long and short entries, exits for winning trades, exits for losing trades, and a rule for leaving a market that is not moving.
A mechanical trading system is a fully specified procedure that maps rule inputs, market state and execution constraints into entry, exit or abstention signals as one testable process. The monthly changer rules below are written in that form.
The changer long entry
The changer long entry is a monthly close above the prior month high together with two successive prior-month low conditions that describe a recent low-to-low decline.
Winning longs and the holding limit
A winning changer long is closed after one profitable monthly settlement unless that settlement is above the entry-month high, in which case the position may be held one more month.
No changer long is held more than two months. If it has not been stopped out or exited on a profitable monthly settlement, it is closed at the two-month limit.
Editorial reading: the two-month limit is the rule for leaving a market that is not moving.
The long stop
A stop-loss is a pre-defined exit that bounds loss or exposure before a trade is placed and while the position is open.
The initial long stop is the lesser of the prior monthly low and a 31-basis-point distance from entry. If the trade is held beyond one month, the stop is moved to the prior month low.
The changer short exits
A winning changer short is closed after one profitable monthly settlement unless that settlement is below the entry-month low, in which case the position may be held one more month.
The initial short stop uses a 31-basis-point distance from entry and, if the trade is held, can be moved to the prior month high.
All readings on this track · 15 readings
- 1987Evaluating a black-box pyramiding routine with adverse excursion
- 1991Set the first stop from a capital-scaled MAE histogram
- 1991Opening gap fades bounded by excursion and time stops
- 1991Stop bounds versus added system parameters
- 1991Bound losses with MAE, stops, and drawdown limits
- 1992Multi-year evaluation of MAE-bounded mechanical rules
- 1992Moving-average add-ons could not be separated by maximum adverse excursion
- 1992Evaluating maximum-adverse-excursion stop reversals with short time stops
- 1992Failed range trades as breakout-system tests
- 1998Fitted moving averages for trend add-on entries
- 1998Monthly changer rules specified as one mechanical procedure
- 2002An excursion cutoff test for stops and profit exits
- 2006Constructing peak-excursion filters for stops and size
- 2006Cost-aware excursion filters for stops and holding period
- 2017Staged stops, drawdown limits, and mechanical risk survival