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Since most of my trading is with patterns, let me
share a very simple but effective "big picture" way of
looking at them with you.
When testing a *long* pattern, see how it does in
bearish conditions on a large number of stocks of
different market caps. If it's not consistently
profitable, drop it. If it is consistently
profitable, see if it does better in ranging and
bullish conditions. Use the same pattern for all
tests. If a pattern is truly robust and captures some
inherent element of market behavior, it should work
under varying conditions on varying issues. Sound
impossible? I assure you it is not.
The pattern in Message 44020 that you were testing
failed the first screen. I've attached a dotplot and
summary statistics for Net % Profit after a 5 day exit
on the 600 S&P smallcap stocks from Mar00 -- Mar03.
Each data point represents the Net % Profit of one
stock (in decimal form, so .4 = 40%), although there
were almost 11,000 total trades. The pattern did a
little better with faster exits and under bullish
conditions. It did slightly worse on midcaps and
largecaps.
Not to sound like a commercial, but AmiBroker makes
this kind of analysis incredibly fast and easy. Run a
quick test, copy & paste the results, and graph. Of
course any number of variations is possible...
Mark
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