Trading systems and money-management techniques, back-tested on a portfolio basis: This set bundles all the Trading System Lab articles that appeared in Active Trader magazine in 2007. Each article includes the in-depth back-testing and analysis used in all the Active Trader Magazine Group's publications. The majority of the systems are tested on a stock portfolio, although some are tested on a futures portfolio or an ETF portfolio.

Note: These articles are designed to show the good, bad, and ugly of trade ideas. As a result, back-testing results in some articles may indicate a system or trade idea is likely to be unprofitable.

You can purchase this article collection for 30% off the regular price. The price listed is the discounted price.


ARTICLE 1: "Exiting after profitable closes" (Active Trader, January 2007).
Exiting after x profitable closes is designed to take profits when a market is still moving in your direction rather than waiting until it moves against you. However, a potential weakness is that factoring out price action prevents the system from adapting to changing market conditions. This long-only test system combines simple trend-following and countertrend entry rules, each of which will be exited after different numbers of profitable closes.

ARTICLE 2: "Winning-streak money-management technique" (Active Trader, February 2007).
The December 2006 Trading System Lab explored "equity-curve money management," which is the process of reducing trade size as a system goes through a losing period. This test shows the results of using a money-management technique based on a system’s historical record of maximum consecutive winning and losing trades.

ARTICLE 3: "Trailing reverse system: Fixed vs. adaptive" (Active Trader, March 2007).
This test analyzes a "trailing reverse" indicator that uses a percentage price reversal from a high or low to determine entry points.

ARTICLE 4: "The Darvas Box System" (Active Trader, April 2007).
Nicolas Darvas made millions in the stock market in the 1950s using a charting method he described in his book How I Made $2,000,000 in the Stock Market. The following tests examine how his basic approach — essentially, a breakout technique — works on a modern stock portfolio.

ARTICLE 5: "Adaptive Renko system" (Active Trader, April 2007).
This test shows the results of a trend-following system designed around a specific charting technique — the "renko" chart, which is similar to a point-and-figure chart in that it reflects price only, not time.

ARTICLE 6: "Losing-streak money management" (Active Trader, May 2007).
The Feb. 2006 Stocks Trading System Lab ("Winning streak money-management technique") tested a system based on the idea that progressively increasing the trade size of a system with an established tendency of producing winning streaks can increase profits. This test will examine the opposite approach: What happens when you increase trade size after successive losing trades?

ARTICLE 7: "DMA pullback and crossover system" (Active Trader, June 2007).
To determine if there’s any benefit to using a DMA over a standard SMA, we will compare the results of two "quick-and-dirty" systems. Both use DMAs to determine if the underlying trend is bullish, but their entry logic differs: The first system enters the market on temporary weakness (a pullback strategy) and the second enters on strength (a crossover, or breakout strategy). Both are long-only systems.

ARTICLE 8: "Two-bar breakout system revisited" (Active Trader, July 2007).
The Nov. 2003 Trading System Lab ("Two-bar breakout system") tested a pattern-based system that entered trades based on the behavior of the two most recent price bars and exited using a very tight stop. Now that almost four full years have passed since the end of this system’s in-sample test period, we decided to revisit this simple system. It originally performed well in futures but not in stocks, although it was marginally profitable in the latter.

ARTICLE 9: "Percent-volatility money management" (Active Trader, August 2007).
This system explores the "percent-volatility" money management approach described by Van K. Tharp in his book Trade Your Way to Financial Freedom (2nd Edition, McGraw-Hill, 2007). The percent-volatility method is similar to the well-known percent-risk money management technique, which determines a trade’s size based on the initial risk defined by the stop-loss price (the method used in many of the Trading System Lab tests).

ARTICLE 10: "Equity range trader" (Active Trader, September 2007).
This article tests a system designed to trade in consolidations in the stock market. The system uses the Average Directional Movement Index (ADX) indicator developed by Welles Wilder to identify non-trending market conditions and then enters and exits short-term trades using a simple price pattern.

ARTICLE 11: "CBOE put/call ratio" (Active Trader, October 2007).
This system trades put/call ratio signals on ETFs. What is needed to test put/call ratio readings are extreme levels that can mechanically signal buys or sells. A common rule is to buy when the put/call ratio is at or above 1.0 and sell when it is at or below 0.6. Preliminary testing of this simple rule on the Active Trader Standard Stock Portfolio and the Dow Jones Industrial Average (DJIA) stocks showed positive, but second-rate, results. This led to the idea to construct an experimental portfolio of exchange-traded funds (ETFs) that demonstrate more uniform, index-like behavior.

ARTICLE 12: "Futures trend pullback with progressive target" (Active Trader, November 2007).
This system, which was first described in the Sept. 2007 issue of Futures & Options Trader magazine, combines a pullback rule to enter existing trends with a "moving target" exit approach that closes positions when the market is still moving in the trade’s favor. Here, the progressive exit rule will be tested alongside a second exit technique to see how they impact the same pullback entry approach.

ARTICLE 13: "HMA pullback system" (Active Trader, November 2007).
The Hull Moving Average (HMA) was created by trader, businessman, mathematician, and IT expert Alan Hull. It is a combination of weighted moving averages (WMA) designed to be more responsive to current price fluctuations while still smoothing prices. In this test, the HMA is used in a strategy featured in a previous Trading System Lab — the "Trend with Pattern Entry (TPE)" system from the April 2003 issue of Active Trader. This system combines a trend-following rule with a simple pullback pattern: a long entry occurs after a brief pullback in an uptrend.

ARTICLE 14: "Intraday pullback trader" (Active Trader, December 2007).
Virtually all traders have experienced the frustration of chasing a market as it moves higher in a strong intraday trend, buying just before the market turns back down and then exiting with a loss just before the market moves back in your direction. The idea behind this system is to find opportune points at which to catch an intraday trend. Purchased separately, these 14 articles would cost a total of $63. You can buy the entire collection as a single PDF file for $44.10 — that’s 30% off.