Frequency Distribution of 1311 T-AT Trades

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• Bin Size = $250

Figure 431 Frequency distribution of T-AT trades showing a spike at the $5,000 initial stop and at trades with profit greater than $8,000.

button for the 65sma-3cc system (see Figure 4.5). It also shows a spike near the $5,000 initial stop. Like the 65sma-3cc distribution, it also shows a spike for trades with big profits. Figure 4.32 shows this distribu­tion normalized and compared to a fitted normal distribution. It is im­mediately clear that the T-AT trade distribution has "fat" tails compared to the normal distribution. Thus, the probability of a trade far from the center is much greater than the corresponding normal distribution. The tail on the profits side is fatter than on the losing side, suggesting that the entries are working well. Observe how the initial stop cuts off losing trades. However, there is no such cutoff on the profit side, as seen by the spike at the right edge of the distribution. This is the TOPS COLA principle introduced in chapter 1 applied to a trading system in practice.

In summary, the T-AT system illustrates how to develop a system that automatically adjusts to market conditions. It differs from the 65sma-3cc system in that its initial stance is to take an antitrend posi­tion; the 65sma-3cc system always takes a position with the trend. A reversal condition switches the T-AT system from antitrend to a trend-

Gold-Bond Intermarket System 123

T-AT Closed trades Frequency Distribution (N = 1311)

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Z score (standard deviations)

Figure 4.32 T-AT frequency distribution normalized and compared to a fitted normal distribution.

following mode. The objective reversal condition assures entry in the di­rection of a major trend, thus allowing you to take advantage of all mar­ket conditions.