Summary. In this chapter we saw how you can develop variations on a theme

In this chapter we saw how you can develop variations on a theme. We saw how the profit, trading frequency, and drawdown change with dif­ferent exit strategies using the channel breakout system. Once you find a variation you like, you can use statistical tests to verify that the changes in performance are significant. We explored two variations on the ADX idea. The tests showed that the trend in the ADX is more useful than a fixed value, such as 30, in designing trading systems. We then saw a vari­ation of the CB-PB system for long and short trades. In this case the pullback was referenced to a moving average rather than to the 20-bar channel. Lastly, we looked at a bottom pattern that is a variation of the usual double bottom formation. That example illustrates how you can take widely recognized patterns to form your own variations.

In this chapter we explored how you can easily develop variations of well-known ideas. Once you know that the results are statistically sig­nificant, you can evaluate how well they fit your trading style. In this way you can develop a large collection of systems for trading.

Chapter

Equity Curve Analysis

The holy grail of trading system design is the perfectly smooth equity curve.