Readers who
would like to duplicate these results can follow the tutorial at the
bottom of this section.
Instruments
The system
trades only one instrument: an Comex Gold continuous contract (Panama
Style, last true). For information on continuous contracts, see
the main TSP index, above.
Posture
The
system trades from both the long side and the short side.
Trading
Signals
Signals issue
right after the close. The system enters orders before the next open, to
trade on stop, the following day.
The system
uses a slow metric to determine the overall long-term trend and then a
fast metric to trade in and out within the direction of the long-term trend.
Support and
Resistance
N-day support is the
lowest low for the past N days. For example, the 50-day support is
the lowest low in the past 50 days. The 50-day resistance is the
highest high in the past 50 days.
When the price trades above the
resistance, it defines the trend as up. The trend stays up until
the price trades below the support. This defines the trend as
down.
If you graph support and resistance on a price chart, it
appears as a corridor around the price. Penetration of
corridor on the upside defines the trend as up while downward
penetration of the corridor defines the trend as down.
This system
uses two sets of S-R lines: (1) long-term support and
resistance to define the long-term trend and (2) short-term
support and resistance to define the short-term trend.
When the
long-term trend is positive, the system then enters the market with a stop
just above the short term resistance and then places a protective stop below the
short-term support.
When the long-term trend is negative, the
system enters the market on a stop just below the short-term support
with protection just above the short-term resistance.
Chart Showing Metrics for SR System
red square = short sale ... blue diamond = cover short
blue square = buy long ... red diamond = exit long
Executions
The system
awards trades with 50% skid. That is, it
executes buy orders at a price half-way between best price and
the high of the day. The best price is the highest of the open, the stop
price or the low of the day. It executes sell orders at a price
half-way between the best price and the low of the day. The best price
is the minimum of the open, the stop price and the high of the day.
The system
exits the final trade at the average of the final closing price and the
worst price of the day.
The system
does not charge commission for entering positions or for rolling
forward.
Position
Sizing
This system
uses stop-specific position sizing. It figures the entry stop and the
corresponding protective stop prior to entering any orders. It
figures risk-per-lot as the difference between these two levels; that
is, it does not figure in an allowance for execution cost. The
system then divides the equity budget by the risk-per-lot to determine
the quantity.
The system
computes equity at the close and then figures orders, after the close,
for entry the following morning.
Output
The
system sketches the equity value, records the results in an equity log,
the essential computations in a metrics log and the trades in a trade log.
It also provides a computation dump to trace the workings of the
programming for debugging purposes.
