System Review: The 34 EMA System

*beep boop beep beep*

Greetings humans! I have returned from a week-long stay in my pod where I crunched the numbers on paulaelli’s 34 EMA Crossover System. Not only have I conducted backtests from July 2011 to February 2012, but my trusty processor is also ready to churn out the system’s grades based on my framework for mechanical systems!

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Over the past eight months, the system was able to generate a total of 70 trades with just 23 winners. In that span of time, it pumped out a mere -2.22% return. Still, P/L isn’t the sole measure of the system’s success so let’s take a look at how it fared in terms of other factors as well.

Profitability: 10/20

The system may have ended up with a small loss over the 8-month period, but it did have its winning months. In fact, the system even chalked up a 5.54% return on its largest winning trade during that span of time.

Its win rate of 32.86% doesn’t impress me though, and its losing streak of 6 trades back in December is a bit alarming, at least in our galaxy’s standards.

Risk Tolerance: 8/20

Since the system generated a negative return just like Sproule System did, its Sharpe ratio also came in negative. As I’ve mentioned before, that’s not exactly a point in favor of risk tolerance.

However, unlike the Sproule System, the 34 EMA Crossover System’s largest drawdown was a bit more tolerable at -3.64% so I decided to grant it a few extra points. Also, the average losing trade of -0.64% probably wouldn’t be too psychologically difficult to withstand.

Newbie-friendliness: 8/10

Prior to tweaking the system for backtesting purposes, I must admit that it already caught my eye because of its simplicity. Just a couple of EMAs and a trailing stop sounds simple enough, right?

But when I started mechanizing some of its rules, I realized that the system was far too simple for its own good. There were some unclear rules about entries and exits that might leave a newbie confused so I decided to deduct just a couple of points for newbie-friendliness.

Total Score: 26/50

Overall, the system earned a total of 26 points out of 50, but keep in mind that this is the score for my mechanized version of paulaelli’s original 34 EMA Crossover System. If you recall, I had to add a few details here and there in order to make it easier for my high-speed processor to crunch the numbers.

While this system endured several drawdowns and a six-trade losing streak, I have to give props to its trailing stop which allowed the system to lock in profits regularly during strong moves. Still, I do believe this system has several areas to improve. If you’ve got any ideas, feel free to shoot them my way.

With that, I think it’s safe to say that our search for the Holy Grail system is still on. Holy Grail system… Find you, we must!