CONOCIMIENTO Y USO DE LA FAUNA

FIGURE 24.1 Many Theoretical Buys and Sells with Mega System: 1 Minute Emini S&Ps (Source: © TradeStation Technologies, Inc. 1991–2006. All rights reserved.)

FIGURE 24.2 Mega System Equity Graph: Emini S&Ps (Source: © TradeStation Technologies, Inc. 1991–2006. All rights reserved.)

There are a lot of quick up and back movements—sometimes at ad- vantageous levels, sometimes not. Overall, the cumulative buys appear to be lower than the sells. You can see very similar results no matter where you scroll throughout the field.

Figure 24.2 displays an equity graph—the progress of your account from Day 1. Not a hiccup anywhere. A solid upsloping 45 degree line. Per- fect looking—like the monolith in 2001.

Then we come to our magical performance summary. Table 24.1 shows the results from January 2002 through November 19, 2005. This time, we’re including a $5 commission per trade, the TradeStation fee as of this writing. It would be pretty absurd to leave it out of this particular demonstration as it encompasses such a big percentage of each trade.

Even over and above that, we have a blueprint for theoretical perfec- “The Best System in the World”—(If Only!) 99

TABLE 24.1 Mega System—One-Minute Bars—$5 Commission per Trade. January 02 through 11-19-05

Total Net Profit $1,840,357.50 Profit Factor 2.13 Gross Profit $3,471,697.50 Gross Loss ($1,631,340.00) Total Number of Trades 222,926 Percent Profitable 69.42%

Winning Trades 154,758 Losing Trades 68,168

Even Trades 0

Avg. Trade Net Profit $8.26 Ratio Avg. Win:Avg. Loss 0.94 Avg. Winning Trade $22.43 Avg. Losing Trade ($23.93) Largest Winning Trade $507.50 Largest Losing Trade ($755.00)

Max. Consecutive 47 Max. Consecutive 20

Winning Trades Losing Trades

Avg. Bars in Winning Trades 2.22 Avg. Bars in Losing Trades 3.46 Avg. Bars in Total Trades 2.60

Max. Shares/Contracts Held 1 Account Size Required $2,947.50 Return on Initial Capital 1,840.36% Annual Rate of Return 76.48% Return Retracement Ratio 1.30 RINA Index 478,469.64 Trading Period 3 Yrs, 10 Percent of Time in the Market 20.63%

Mths, 15 Dys, 5 Hrs, 53 Mins Max. Equity Run-up $1,840,520.00

Max. Drawdown (Intra- Max. Drawdown (Trade day Peak to Valley) Close to Trade Close)

Value ($3,022.50) Value ($2,947.50)

Net Profit as % of 60,888.59% Net Profit as % of

Drawdown Drawdown 62,437.91%

Source: © TradeStation Technologies, Inc. 1991–2006. All rights reserved.

tion. The worst giveback throughout the history would have been $3023 on an intraday peak-to-valley basis. Sixty-nine percent of the trades would have been profitable. You’d average $8.26 profit-per-trade over nearly a quarter of a million of them. This is the kind of pain-free utopia that could make traders out of even the least risk-adverse among us.

But upon returning to the profit-per-trade line, we understand the crux of our dilemma. It’s not that we’re going to have skids—we’re flip- ping positions all day long on limit orders. The problem lies with our re- curring “touched-but-not-filled” issue. How many of these pristine trades are going to actually occur? What happens to the ones that don’t material- ize? How will we handle being positioned the wrong way when a “theoret- ical flip” is not actualized? How and for how long? How and when do we cry “uncle”? (Maybe we should ask Dr. Discretionary.)

Table 24.1 contains clues as to how much “give” we’d have. You can compute how many trades you could expect per day and how much profit you’d average on each. You’d have idealized objectives. Real-world trading would fall short, but could you use various tricks to stay in the ballpark?

How much could we be helped by keeping orders alive for up to 10 minutes after the prices are touched but not penetrated? Let’s say we leave them up even after later opposite orders are filled (thereby making us periodically long or short more than one unit). We can get away with coming back and “picking up our spares” for awhile, as Figure 24.3 demonstrates. All buys that were potentially but not necessarily filled on the first bar low would definitely have been executed within 10 bars down the line because there was always a subsequent bar that traded lower than the theoretical buy entry level. Similarly, within 10 bars of the sell entry, there was always at least one bar that took out the one minute short signal bar high. Again, it doesn’t matter if we’re sometimes filled out of sequence as long as we get our price penetration sometime within ten minutes. In the Figure 24.3 timeframe, therefore, our actual profit would exactly match our projected one.

Does this get us closer to “home free”? Not if the Figure 24.4 time frame is the more dominant reality. We now see the dark side of attempt- ing to pick up spares. We tend to be the most wrong when the market is at its most relentless. It’s racking up ever more theoretical shorts at succes- sively lower levels, and in actual trade, we’re undoubtedly missing some if not all of them.

Meanwhile, we have no problem executing the countertrending long orders as the market continues to march lower. We may have missed as many as seven shorts and finally been forced to offset seven correspond- ing actual longs near the low of the move.

Again, though, if there were some way to capture 20 or 10 or even 5