Chuck LeBeau's System Traders Club
BULLETIN Vol. 1 Number 12 Oct. 29, 1998
SPECIAL INTERIM BULLETIN: Changing the 25 X 25 System Exit
After the last big run up in bonds we observed that the logic of the "25 X 25"Bond System exits needed some improvement. The system was operating on the assumption that in a trending market the longer we hold a position the greaterthe profit. The exit strategy was intended to more or less force us to hold positions at least 25 days or more.
The problem we discovered was that after the recent buy signal we had a huge profit after only 12 days and the stop was still too far away. Our original logic was flawed because we equated time in the trade with profitability rather than simply measuring profitability directly.
Big profits need to be protected regardless of how long it takes to obtain them. As usual the fix was easy once the problem was defined. We simply added an additional exit that moves the stop up as soon as we have 5 Average
True Ranges of profit. This is not a curve fit for one event. There were several other times in our historical data where this exit was needed. The logic of the exits makes much more sense now. We should have spotted this flaw earlier because we want all of our systems to be as logical as possible. We continuously emphasize that the logic of a system is much more important than the historical performance data.
Here is the additional line of code that will convert the previous system into version 2.0:
if c> entryprice + (5 * AvgTrueRange(45)) then exitlong lowest(low,2) stop;
New code including this change as well as new performance data are available at http://www.traderclub.com/25.htm
Good luck and good trading