"BIG DIPPER" BOND TRADING SYSTEM
Copyright 1998 by Charles Le Beau and Terence Tan
INTRODUCTION
We continue our series of trading systems for the Treasury Bond futures market with a system called Big Dipper. Big Dipper is a long-only trend-following Bond trading system that has returned hypothetical profits exceeding $73,000 over the last 10 years with an accuracy rate of 88 percent, and an average win to average loss ratio of 1.23 over 43 trades. The maximum drawdown was less than $4,400 over the test period.
BIG DIPPER SYSTEM RULES
ENTRY RULES
To go long in the Bond market, three conditions must be met.
1. The close must be above the 200-day simple moving average.
2. The close must also be above the 35-day simple moving average.
3. The 9-day RSI must have declined more than 5 points from 4 days ago.
4. If these three conditions are met, then buy tomorrow only if and when prices rise 8 ticks (8/32) above the opening price tomorrow. The opening price here refers to the day-session opening.
EXIT RULES
After a trade has been entered, place a sell stop at whichever of the stop orders below are closest to the market price.
1. A stop order at $2,000 below the entry price.
2. If the most recent close is profitable by more than 10 ticks, place a stop order tomorrow to exit at the lowest low of the last 10 days.
3. If the most recent close is profitable by more than 30 ticks, place a stop order to exit the trade at 5 ticks above the entry price.
EXPLANATIONS
The exit rules require additional elaboration. Except for the $2,000 money management stop, the other exit stops are dynamic because they are dependent on the most recent closing price. Therefore, depending on the most recent closing price, it is possible to have none, or even both of these additional stops active in the market. In these cases, you would always calculate the stop that is nearest to the market and place that stop as the only exit order.
For instance, in the situation where the most recent close is profitable by 10 ticks, the only stop to be placed in the market for the next day would be the $2,000 money management stop. (Remember, exit rule #2 requires that the recent close be profitable by more than 10 ticks.) If the most recent close is profitable by 15 ticks, both stops 1 and 2 would apply. You would therefore calculate the $2,000 stop, as well as the lowest low of the most recent 10 days, and choose the stop closest to the market. If the most recent close is profitable by 32 ticks, all 3 stops are applicable, and you would implement only the stop closest to the market. In addition, these stops are always based only on the most recent closing price. For instance, if the close 2 days ago was profitable by 12 ticks, but the market declined today so that the most recent close was only profitable by 5 ticks, we do not implement the 10-day channel stop for the next day.
HISTORICAL RESULTS
Table 1 and Chart 1 on the next page show the historical results of trading 1 contract on the system tested over 10 years of data. For testing purposes, we used continuous back-adjusted daily data. We ignored all night sessions, and all calculations were based on day-session prices and ranges. $100 was deducted from every trade to simulate the effects of commissions and slippage. The test period was from 1/1/87 to 1/27/98 with MaxBarsBack set to 200 to enable calculation of the 200 day moving average before trading commences. (MaxBarsBack refers to the number of bars of data necessary to calculate the rules in a system. System rules only begin after the MaxBarsBack period. The test period includes the MaxBarsBack period, so that no trades are taken for the first 200 trading days.)
BIG DIPPER SYSTEM HISTORICAL RESULTS
Total net profit $ 73,637.50 Open position P/L $ 0.00
Gross profit $ 82,450.00 Gross loss $ 8,812.50
Total # of trades 43 Percent profitable 88%
Number winning trades 38 Number losing trades 5
Largest winning trade $ 11,337.50 Largest losing trade $ -2,256.25
Average winning trade $ 2,169.74 Average losing trade $ -1,762.50
Ratio avg win/avg loss 1.23 Avg trade(win & loss) $ 1,712.50
Max consec. winners 22 Max consec. losers 2
Avg # bars in winners 28 Avg # bars in losers 14
Max intraday drawdown $ - 4,356.25
Profit factor 9.36 Max # contracts held 1
Account size required $ 4,356.25 Return on account 1690%
Installation Notes, Extra Information and Download/Mirror Links
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