Basic rules The trading system itself is shockingly rudimentary. There's an oscillator (the so called Pretty Good Oscillator) that swings above and below zero. When the oscillator swings above +3.0, that's a BUY signal. When it retreats below 0.0, that's an EXITLONG signal. When the oscillator swings below -3.0, that's a SELLSHORT signal. And when it advances above 0.0, that's an EXITSHORT signal. It's pretty simple. To break the PGO code down. Within it there is a moving average which has a lookback of the sum of a few fib. numbers. When price = the moving average, PGO = 0. and when PGO = 0 you exit. THUS, the moving average is your stop. The PGO value is equal to the number of ATR's between the close and the moving avg. So if PGO=2.5, then the close is = MA+2.5*ATR. All PGO is doing is saying "if the close is >= 2 ATR's above the average then buy. I have just started to play with the PGO and when applied to Tbonds and Yen, it works great. Of course the rate of return is dependent on the position size used. My main initial concern was the lack of a hard dollar stop loss. My risk per trade can be huge. I tried a few hard dollar stops but overall performance was decreased. ie. larger drawdown, less net profit. Possibly if I use PGO as a setup and develop an entry trigger I will improve results. This may also allow me to use a hard dollar stop. As you may observe, the moving average is the exit point. If you're following Mark Johnson's rules you'll be out, so the risk is the entry to MA. If that's too far away, and it very often is, then try the ATR or pivot low. Alternatively, you could wait for a pullback and get in at a better price. You may be able to take on a larger position for the same risk, or at least reduce the risk. Expect to miss some trades though - pullbacks don't always happen. The return of this system is impressive.
How have you tested this to determine it's impressiveness? Have you used TradeStation or Wealth-Lab? I'd be interested in seeing the script and interested in the oscillator. Thanks for the post.
You can see the whole system @ http://www.mjohnson.com/special_needs/pgosc.zip excel code @ http://www.mjohnson.com/special_needs/pgozz.xls
Could you post results from your testing - ir, # of trades, % profitable, winners/losers, avg winner, avg loser?
In 2000, the PGO system executed 66 trades. Even with MAXIMUM SLIPPAGE applied, and also a commission of $25.00 deducted, 28 of those 66 trades were winners and 38 were losers, a win percentage of 42.4%. This is a tiny bit better than the previous test result for 1987-1999, which came in at 41.5% (on a total of 648 trades). The average profit per contract in this test was $1,397. Big winners in 2000 were Unleaded Gasoline, Lumber, British Pound, and Natural Gas. Big losers in 2000 were Cotton and 30 Year Bonds. It appears that PGO did well on the MAXIMUM SLIPPAGE test in 2000. Now what about the PORTFOLIO TRADING WITH BETSIZING test? I ran this test again, the same as before. Commission and slippage were set to $75 for this test, same as before. The same equity-linked aggressive bet sizing approach was used, as before. â The test results for the year 2000 were quite nice: .... 123.28 ....... Compound Annual Growth Rate (percent) ..... 20.80 ....... Max Drawdown (percent) ..... 5.926 ....... (CAGR / MAXDD) Ratio ..... 45.36 ....... Annual Standard Deviation (percent) ..... 2.608 ....... Sharpe Ratio ... 80000.00 ....... Starting equity 202603393.00 ....... Final equity 202523393.00 ....... Net profit ...... 73.57 ....... Compound Annual Growth Rate (percent) ...... 45.13 ....... Max Drawdown (percent) ........ 239 ....... Days in longest drawdown ...... 1.630 ....... (CAGR / MAXDD) Ratio ...... 46.11 ....... Annual Standard Deviation (percent) ...... 28.83 ....... Average max annual drawdown (percent) ..... 10.548 ....... Percent of days making new equity highs ...... 1.487 ....... Sharpe Ratio ...... 2.127 ....... Semideviation Ratio ...... 6.497 ....... Return Retracement Ratio ...... 1.832 ....... Sterling Ratio ... 19870101 ....... First day of test ... 20010103 ....... Last day of test ....... 3650 ....... # days in test ...... 75.00 ....... Slippage and commission per contract Andras Nagy www.Coach4traders.com Disclaimer: This is not a solicitation to trade commodities or stocks. Our business is research and consulting for mechanical trading systems development. These results are impressive but simulated trading results are not an assurance that performance will be repeated in the future and you will make money. Trading futures and stocks is a risky undertaking and we recommend you donât risk money you cannot afford.
Despite the oscillator terminology this is a volatility breakout system with a MA stop/exit. You are buying at 3 times the ATR added to the MA. I find the results fairly typical of these systems, ie profitable across a portfolio of commodities, big drawdown, low win percent. Actually the win percent is somewhat higher than I would expect. I think it is a very good idea to trade these on a portfolio of non correlated markets. Otherwise you might not catch the big winners necessary to be profitable. It takes a fairly big account and a lot of discipline.
Andrasnm describes this system as shockingly rudimentary. That's another way of saying robust. The systems that stand up over time are generally simple, with few parameters. They may have drawdowns, they may not have a great looking win/loss percentage, but they grind it out over time.