*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!
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.
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.
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!