publication

strategies
www.tradersonline-mag.com 04.2014
F4) Equity Curve for This Backtest
18,000. Remember that there are
no trade management techniques
incorporated into this test. An
examination of the individual
signals and the trading history may
yield ways to smooth the equity
curve.
In addition to favourable net results, the slope is positive overall. The drawdown period mentioned in the
article, from mid-June through late July 2013, is clearly visible in the middle of the curve.
Strategy Snapshot
Strategy Name:
Strategy Type:
Time Horizon:
Entry:
Exit:
Average Number of
Signals:
Average Hit Rate/
Profit to Loss/Return
per Month etc.:
DAX/Euro Relative Strength
Trend-following for DAX futures, using Relative
Strength and correlation analysis between the DAX
futures and EUR/USD
Day-trading during cash DAX session, using
6-minute bars
Long entry: Momentum of average RS line greater
than 0 (positive momentum) and correlation
coefficient less than -0.1 (negative correlation)
Short entry: Momentum of average RS line less
than 0 (negative momentum) and correlation
coefficient less than -0.1 (negative correlation)
Positions reversed on new signals; all positions
closed at end of cash DAX session, open of 5.30
pm CET bar
3 per day during the test period
Percent Profitable 43%
Ratio Avg Win: Avg Loss 1.67
Profit Factor 1.28
Average monthly return 7.21%
(All results are from a backtest on calendar 2013 data.
More information on test conditions is in the article)
Conclusions
The DAX/Euro Relative Strength
strategy employs two measures
of the price relationship between
DAX futures and EUR/USD. Those
measures are common technical
analysis methods: Relative Strength
and correlation. This is an approach
that is not only multi-market, but
also multi-dimensional in that it
involves two distinct intermarket
calculations.
There are several aspects of
Source: TradeStation
this strategy that can and should be
researched further, and even some
missing elements that could be
incorporated into the strategy. However, one should be
careful not to be fall into the trap of overcomplicating the
machinery.
The most obvious missing element is a protective
stop. Even a simple fixed stop-loss protocol may be
helpful in preventing outsize losses on individual
trades.
As demonstrated here, the strategy has no exit rules.
Can any of the calculations used to determine entries, or
other technical analysis methods, be part of exit signals
Can entries be filtered any further For example,
entries require that correlation be less than -0.1 but
there is no consideration given to the direction in which
correlation is trending.
Finally, the strategy’s time-in-market approaches
100 per cent when considered against the trading hours
as defined above. It is possible that performance and
particularly the risk-adjusted performance measures
would improve by identifying periods when there should
be no positions. «
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