Catallactic Analysis

Percent Exposure Donchian Channel Method:
Market Selection by RS Momentum

August 22, 2009

This system is an expansion of David Varadi's Percent Exposure Donchian Channel Method strategy with the RS momentum (note: I used volatility adjusted RS) market selection he suggested in his follow-up.

System Rules:

The 200 day channel dictates the main trend.
Smaller channels are traded using a 2 ATR (10 day exponential average) stop.

Strategy 1 = 20 day Donchian Channel
Strategy 2 = 50 day Donchian Channel
Strategy 3 = 100 day Donchian Channel

Donchian Channel length doubled for trades taken counter to the main trend.
Reduce position size by half when trading counter to the main trend.
Entries only triggered by new channel breaks (current breakout must be preceded by break in the opposing direction).

Market selection based on RS Momentum Ranking

Enter top 6 markets ranked by ((1 year price change + 1 month price change)/2) / (10 day ATR)

Strategies 1,2,3

Enter bottom 3 markets ranked by (3 year price change) / (10 day ATR)

Strategies 4,5,6

Strategy 1 + 4

With Trend

Enter on 20 day Donchian Breakout
Exit on 10 day Donchian Breakout
Position Multiplier = .20

Counter to Trend

Enter on 40 day Donchian Breakout
Exit on 20 day Donchian Breakout
Position Multiplier = .10

Strategy 2 + 5

With Trend

Enter on 50 day Donchian Breakout
Exit on 25 day Donchian Breakout
Position Multiplier = .30

Counter to Trend

Enter on 100 day Donchian Breakout
Exit on 50 day Donchian Breakout
Position Multiplier = .15

Strategy 3 + 6

With Trend

Enter on 100 day Donchian Breakout
Exit on 50 day Donchian Breakout
Position Multiplier = .50

Counter to Trend

Enter on 200 day Donchian Breakout
Exit on 100 day Donchian Breakout
Position Multiplier = .25

Position Size = ((Account Equity * 1%)/2 ATR) * Position Multiplier
Transaction Slippage = 2 ticks
Markets Traded: ES, NQ, TF, GC, SI, HG, CL, HO, NG, RB, ZC, CC, CT, KC, ZW, LE, HE, ZS, SB, AUD, GBP, JPY, EUR, CHF

Results:

Start Date

19840103

End Data

20090818

Trade Days

6449

Years

25.59

Months

Years

Winning

173

Losing

134

Best

16%

35%

Worst

-12%

-9%

CAGR

10.75%

Max DrawDown

20070817

-23.87%

MAR

.45

Lake Ratio

8.57%

R-Squared

.97

Sharpe Ratio

.85

Total Return

1292%

Starting Equity

$ 1,000,000

Ending Equity

$ 13,918,987

Full Report

Reviewing the results, it looks like the RS Momentum market selection produced more robust results. I was most impressed with the system's ability to capture most of the return from the original system with 40% less trades along with a reduction in the max drawdown by 25%.

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