Hitcher System 1 : On/Off

The Hitcher system is one I have devised and intend to paper trade live to see how it stacks up.  It is completely untested but will use the standard trend following ideas I usually adhere to so I expect it to make money.

The first idea is the on/off switch.  To see how switches affect trading performance it is worth reading "Unholy Grails" by Nick Radge.  He back-tests a number of systems with and without an on/off switch and the general outcome is that by using one you make less money BUT the you also suffer less severe draw-downs.

Taking huge draw-downs is never much fun so, from my perspective, the smooth equity curve is desirable. There is another feature of the switch that I have come to love, it becomes a type of holiday setting.  When the system is off I don't bother looking for new trades and managing the existing trades becomes progressively easier.  Generally you lose a few quite quickly and the rest either keep going or eventually drop off the perch.  In the meantime it's simply a case of firing up the PC, checking a few charts and adjusting a stop or target here and there then heading for the beach, lakes or mountains or perhaps, the renovations but I like the idea of beaches and mountains better.

"Everything should be made as simple as possible, but not simpler." - Einstein

In keeping it the above, I present (drum roll) the traffic light.

All Ordinaries - Click to enlarge
Chart courtesy of www.IncredibleCharts.com

All I have done here is taken the Australian All Ords index and applied

• 10 day Exponential Moving Average - Green
• 20 day Exponential Moving Average - Amber
• 30 day Exponential Moving Average - Red

When they are lined up like a traffic light the system will buy.  When they become scrambled the system will pause and when they are inverted the system will get defensive and tighten the hard stops.