Monday, September 14, 2009

2 Days In Chop Systems - 1 Year Later

About a year ago I showed 2 systems that looked to take advantage of the market’s choppy nature. Since that time I have tracked the performance of these two incredibly simple systems in the Quantifiable Edges Subscriber Letter. I’ve referred to them as the “2 Days In Chop” systems. As a quick refresher the rules for each are below:

Long System (2 Days Down In Chop):
1) Buy the SPX any time it closes lower 2 days in a row.
2) Sell the 1st profitable close up to 3 days later.
3) Sell on the 3rd day regardless of profitability.

Short System (2 Days Up In Chop):
1) Short the SPX any time it closes higher 2 days in a row.
2) Cover the 1st profitable close up to 4 days later.
3) Cover on the 4th day regardless of profitability.

A few quick notes:
At the time the market was locked in a downtrend which is why I gave the shorts an extra day.
I noted the systems were very raw and were not something I would trade “as is”.

Below I will show the combined performance of the 2 systems since I introduced them. In upcoming posts I’ll discuss how I use the systems and also discuss some thoughts on them and some ideas in which the basic systems could be improved.

Here is the performance over the last year +.

A 73% return would seem very impressive for something so simple. It has had a bit of a drawdown lately, though. Below is a profit curve.

The system peaked on 6/22 and has had a few rough trades as of late. Still, the recent drawdown is very small compared to the overall gains of the system.

So why haven’t I simply traded the system “as is” for the last year? I guess you could say that I’m just not smart enough to blindly trade a system this dumb.

I’m getting a little smarter, though. And I’ll have more in upcoming posts.


Unknown said...

The "turtles" traded a very simple system as well and there was nothing dumb about the cash they took home.

Jeff said...

Rob, so true. Sometimes we have to be even dumber to be smart.

It does make it especially hard when the dumb system takes off and doesn't look back.

Its a little easier when it backtests well but underperforms in real time.