The Forecasting Systems Letter
Jeffrey Mishlove
Vol. 3, # 3
Thursday, September 7, 2006

Is the Market Starting To Reverse Itself -- BioComp Dakota Thinks So
But How Reliable Is This Trading Approach?
The chart below is the same BioComp Dakota System we presented on September 4. However, upon digesting the market data from Tuesday, Sept 5, a sell signal was issued. And, as the chart shows, the market dropped on Wednesday, Sept 6 -- and again today, Sept. 7.


As I have mentioned previously, BioComp Dakota is very unique among financial forecasting systems -- offering a approach that is continually adjusting to market conditions -- and is always out-of-sample. The chart above, shows the Dakota performance for the past year. But, actually, I have ten and a half years of out-of-sample (i.e., equivalent to authentic, real-time trading) performance for this system on ten years of market data. those results are presented below.



Again, let me describe the chart above. The top chart represents the price of the S&P 500 futures contract. The red oscillator in the middle is the Dakota trading signal. The bottom chart represents equity, or profit, from following this trading signal. During the ten and a half years (since April 1996) pictured above, the total equity from trading a single futures contract is 1710 points. This averages out to a bit better than 162 points a year.

To trade the S&P futures contract, I recommend an account size of at least $50,000 (although this is more than twice the size of the minimum required account). A gain of 162 points a year, represents an annual return of  more than 80% each year on the original investment. (Of course, if one were to reinvest those gains in additional futures contracts, the returns would be much higher.)

Here are more statistics regarding this particular Dakota trading system:

Trade Count
 348
                           
Winning Trades
 220      (63.22%)
Losing Trades
 128      (36.78%)
Cumulative Winners
 4954.9290
Cumulative Losers
 -3244.7730
Average Winner
 22.5224
Average Loser
 -25.3498
Highest Trade
 89.1800
Lowest Trade
 -117.3000
Average Trade
 4.9142
Bars Long
 1312
Bars Short
 1309
% in Position
 100%
Trade Stdev
 30.9020
Win/Loss Point Ratio
 1.5270



Max Drawdown
 437.3420
Bars Duration
 582
Time Duration
 849
Max DD Date Start
 8/8/2001
Max DD Date End
 12/5/2003
Max DD %
 32.45%



Net Equity
 1722.0560
Minimum Equity
 0.0
Buy-n-Hold Equity
 337.9000
Equity straightness
 0.9131
% of Perfect
 6.98%
% Direction Correct
 52.19%



Most individual investors may not have the stomach for a trading system like this one -- that lost money for a period lasting over two years. On the other hand, most institutional investors would envy a system that could produce results like this over a ten year period. These results, incidently, are hypothetical in the sense that they do not include calculation for trading fees and commissions, nor slippage. Nor are there any stop losses, or risk management features, factored into this system. The results are not as spectacular as many trading systems that I have seen. But, I haven't seen any systems that offer ten years of out-of-sample trading and also perform at this level.

I should also add that BioComp Dakota is a relatively new approach -- having been introduced only within the last year. I think that there's every reason to believe that we will be seeing some significant improvements in the future. For example, a real-time version was just introduced for day-traders. And, I have a few ideas of my own for trading "bots" that are more sophisticated than those currently being used. No doubt, other users do as well. And, a nice feature of Dakota is that the users have been freely sharing ideas with each other.

Incidentally, how does Omnitrader view current market conditions? OmniTrader is still bullish on the S&P futures contract -- in spite of the recent market drop. (But the Omnitrader signal changes direction much less frequently than thie particular Dakota system I have presented.)

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