MODUS Mini-Course PART 4

The MODUS Method - Steps 5 and 6

STEP 5 : System Improvement (And Series 3 Tests)

After setting up and testing the parameter settings, you will review the results your system is producing and consider the performance of individual trades.

Looking at individual trades reveals a lot about how a system is working and is very much encouraged as part of the MODUS Method.

Further improvements that can be made to the system may be revealed by doing this. Individual trades are not particularly important for their own sake, their value is more as representatives of ‘how the system trades’.

MODUS Commodity Trading Course & Trading Blox System Tester

This kind of trade analysis is valuable to aid understanding of how your proposed system achieved its results and helps you judge whether it is suited to your temperament

What would make you feel even more comfortable?

This phase of the MODUS Method is concerned with how you feel about what the system is doing and whether you are comfortable with the way it is trading.

For example, you may feel that not enough trades are being made for your liking. You would prefer it if more trades were being made as this would give the system more robustness in your view.

You will decide how you can bring about an increase in the number of trades and then conduct whatever tests are necessary to accomplish this. When you are satisfied, you can move to the next step.

The MODUS Method STEP 6 : Resonant Risk Calibration (And Series 4 Tests) 

Up to now the evaluation process has been concerned with allowing the system a free rein to show ‘what it can do’. Alterations have been made to the parameter values that the system started out with at the beginning. These alterations will have changed the character of the system to some extent, perhaps considerably.

Turning down the heat

This final step of the evaluation process is straightforward but vitally important and enables you to adjust your risk per trade so that it harmonises with the system resonance and your trading goals.

This procedure will also affect the return produced by the system as risk and return are inextricably linked in any system, though it be in different ratios.

Only at this point, when the ‘heat’ of the system has been re-calibrated can you get a proper perspective of the system as far as it relates to your own personal needs – your trading goals.

MODUS Commodity Trading Course & Trading Blox System Tester

Homing in on the 'risk resonance' of a system

The exact way that this and other steps in the MODUS Method are carried out can only be fully appreciated when you take the full MODUS Course and use the Trading Blox System Tester. However I hope that my attempts to explain the Method have been sufficient to give you a good understanding of what is necessary. 

These final ‘Series 4 Tests’ complete the evaluation process.  

Now we can make some progress with evaluating the Crossover System

System rules come and go

But before doing so, it is important to note that the MODUS Method is designed to allow traders to evaluate any system but does not propose any system rules – the trader presents ‘his own rules’ for assessment.

The effectiveness of particular systems and best ways for you to trade specific systems rules will change over time as the markets adjust to them. Therefore system rules should be seen as temporary things.

But professional methods are forever

The MODUS Method on the other hand is a methodical way of trading that does not change, except insofar as best practice may change gradually as greater knowledge and experience are acquired or new opportunities arise.

When the MODUS Method is employed, it is applied systematically and requires no intricate actions on the part of the trader. It is simple and straightforward and between the two of them, the Method and the software bear the brunt of the detail work.

Results of the Series 4 Tests for Crossover System

Whose test is it?

The test was set up for a bold trader, with a starting capital of $65,000.

After choosing the parameter values as in Step 4, the short term moving average value chosen was 99 days and the long term moving average value, 214 days.

A reminder about the software used

The Trading Blox System Tester software was used. This simulates live market conditions. For example, all of the trades are ‘position sized’ according to funds available on the day in question and if they are fully committed, further trades will be refused until funds are available. The testing procedure advances day by day in this manner throughout the 10 year period.

 

Crossover System RESULTS - 1st January 1994 to 31st July 2004

		Winning	Losing	Total	Profit
Commodity	Code	Trades	Trades	Trades	$
Australian Dollar	AD	5	12	17
Soybean Oil	BO	4	26	30
British Pound	BP	5	19	24
Corn	C	3	21	24
Cocoa	CC	7	19	26
Canadian Dollar	CD	7	23	30
Crude Oil	CL	6	10	16
Cotton	CT	4	24	28
Eurodollar	ED	5	13	18
Gold	GC	5	13	18
Copper	HG	4	26	30
Heating Oil	HO	6	16	22
Unleaded Gas	HU	4	8	12
Mexican Peso	MP	6	22	28
Palladium	PA	4	4	8
Soybeans	S	3	24	27
Sugar	SB	3	5	8
Silver	SI	10	35	45
Soybean Meal	SM	5	5	10
US Bonds	US	4	16	20
Wheat	W	6	26	32
	Totals	106	367	473	$5,478,067

(Results produced with the MODUS Method and Trading Blox software)

In contrast to the results produced for the First Evaluation, individual commodity results are not shown here.

This is because it could be misleading to do so. Individual commodity buy and sell signals will have been executed in accordance with general trading goals and funds available ‘on a particular day’.

It is very likely that some signals will have been ignored altogether and position sizes of some trades will have been altered depending on prevailing conditions. Where there is any conflict, maximising the performance of individual trades is sacrificed for the common aim of producing the overall best outcome.

 

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