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The following system was discussed in another Yahoo group and I want
to know if it is possible to write the AFL for this system:
The system is comprised of 4 parts: (1) the setup, which is the
pullback, (2) the filters to identify the best time to go long, (3)
buy rules, and (4) exit rules. Details for each part follow:
Setup: A high occurs which is higher than the last 7 trading days
and higher than the next 2-4 trading days and is followed by a close
that is 2% below the high occurring within 2-4 trading days.
Filters: there are two filters to determine if the Nasdaq is in an
uptrend. The 20 bar RSI must be greater than 50, and the 5 bar
exponential moving average (ema) of the close (cyan) must be greater
than the 21 bar ema (red).
Buy Rules: go long the Nasdaq on the close of the 6th or 7th day of
a pullback if both filters are positive; use the 6th day close to
buy if the 2% decline occurs on the 1st through 3rd day close
following the high; use the 7th day close to buy if the 2% decline
occurs on the 4th or 5th day close after the high. Take a second
long position if another pullback setup occurs within 12 days of the
first long position and both filters are positive.
Exit Rules: exit the long position on the close of the 12th trading
day from the entry point or if the position reaches an 8% profit
target, whichever comes first. Use a 7% stop loss.
The system was backtested using Nasdaq data from 1/6/1997 to
7/1/2002. There were 71% profitable trades for a total of 2880
points - The system was also applied to out-of-sample data from 7/1/02
to 8/29/03. There were 83% profitable trades for a total of 472 points
Based on out-of-sample testing the system appears to be robust.
In the last two weeks, two more pullback setups occurred, which
generated buy signals. The system is currently holding 2 long
positions from the close of 9/02 and 9/16. The system will exit both
positions at the close of 10/02 or at an 8% gain from the 9/16
close, whichever comes first.
The system details are provided to this group for educational purposes
ONLY, and is not a recommendation to go long. Please feel free to
shoot holes in this system. I am here to learn, and all criticism will
be viewed as constructive.
Alan
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