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August 2007 Stocks and Commodities Traders Tips


Constructing a Template For System Management

Original article was an interview with Giorgos E. Siligardos
AIQ Code by Richard Denning

The AIQ code for the dynamic reward/risk barrier trailing stop (SB) is given below. Since this is an exit, I needed a system with a conventional trailing stop as a benchmark for comparison. Since the author suggests that the SB is better for trend following and longer term position trades, I used a 30 day channel break out system on a portfolio of the iShare ETFs from Barclays. System rules are detailed within the comments of the code below. I tested the SB stop against a mid channel trailing stop (MCT). When adding the SB stop, I used the author’s suggestion that the SB stop should not be used alone but only as the maximum value for the main trailing stop. In Figure 1, I show a comparison of the MCT (upper red line) to the SB with a minimum reward to risk ratio (minDRR) of 3.0 (lower blue line). I also tried other minDRR values. My tests indicate that adding the SB to this particular type of trend following system did not improve the returns. In fact the higher that I set the value for the minDRR, the lower were my average returns and corresponding Sharpe values. Only when the minDRR value was set to less than 1.0 did the returns come close to the benchmark, MCT. The returns with various minDRR values are shown in the table at the bottom of Figure 1.

FIGURE 1 (click here to view).

The results of this one test are by no means conclusive and the SB stop may be superior to other trailing stop methods when used with the channel breakout system or a different system. Further testing with each type of system should be done.

I provide the code for the SSB which is to be used as a trailing stop for short positions but I did not test the short side.

EDS Code for System Management
System ManagementTASC.EDS

ETF List File for AIQ
ETF-ISHR.lis

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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