ratio of 1.0 for random entries without any portfolio filtering. Sec-
ond, you can combine the filter with our entry signals to see how the
portfolio trend filter affects the edge ratio of our breakout signals.
Running a test of 70,000 random entries
with the trend portfo-
lio filter shows a remarkable E70-ratio of 1.27. This is even greater
than the E70-ratio for the entry signal itself. This serves as a clear
indication that this portfolio selection
algorithm increases the edge
of the system.
Using a trend portfolio filter substantially increases the likelihood
of movement in the direction of a trade taken with a breakout. The
E70-ratio for our example moved from 1.20 to 1.33. Further, the
use of a trend filter combined with a breakout changes the shape
and smoothness of the resulting edge ratio graph (Figure 5-3).
Notice how much smoother the graph in Figure 5-3 is and how
much higher the edge ratio climbs after
we add the trend portfolio
filter. The graph shows that the E120-ratio is about 1.6.
The reason for this result is that breakout trades that go against
the long-term trend have been eliminated. Those trades were a
source of many of the significant moves
against the initial position
since breakouts that occur in the direction opposite a trend are
much less likely to result in significant continuation. These break-
outs are also indicative of the market being
in a state which is not
as favorable to the Donchian Trend system.
The Exit Edge
Even the exit signals for a system should have an edge if possible.
Unfortunately, it is somewhat more difficult to measure the edge of
an exit. This is the case because exits
are dependent on the condi-
Trading with an Edge
•
Do'stlaringiz bilan baham: 
