Strategy backtest pt.4 - short trades

In the last two posts about my backtesting I focused on long trades. This time I want to present first short trade results. Again I used the DAX (Ger30) between 1992 and 2004 as underlying asset.


For all investigated scenarios I used the rate only to decide when to open a trade. The difference between the approaches is when I closed the trade. The results are shown in the table below.

1. close on fixed stop loss
2. close on reinforced stop loss
3. close on trailing stop loss
4. close when rate increases or fixed stop loss
5. close when rate increases or reinforced stop loss
6. close when rate increases or trailing stop loss

(Please refer to my older posts for an explanation of the different stop loss systems or the performance index DPI)






The overall DPI is negative for all six trading approaches. That means they would all loose money, even though the DAX (Ger30) nearly tripled its value in the same time period. Here are some more detailed findings:

• In the bearish years of 2000-2002 the trading systems 2, 4 & 5 where the most successful and more profitable than a buy-and-hold strategy on the DAX. The overall performance look bad on a first sight since there are a lot more bullish years in the investigated period of time than bearish years.
• The trailing stop loss system was again the worst choice of the three methods used. In the third investigated scenario it would have nearly ruined the complete equity. And even in the bearish years of 2000-2002 both trailing-SL-systems had performed worse than the DAX.
• The trading systems where the trades are closed on increasing rates are slightly more successful then the once that only use stop losses.
• I found another proof that the number of trades is no indicator for success: Systems #3 and #6 where the least successful with 747 and 1088 trades, while #4 was the best performing system with 839 trades. 
• In 1992 all strategies in today's investigation where more profitable than the DAX itself. The reason therefore is a bearish moment in the middle of this year, while the rest of the year was rather bullish.

My overall conclusion: Sell trades - big surprise - work best in bearish market situations. So it seems inevitable to add some sort of market detection to the trading system. I will cover that in my next backtesting post.

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Related posts:

Strategy backtest pt.9 - "past performance is not an indication of future results"

strategy backtest pt.2 - long trade indicators

strategy backtest pt.2

Evaluating the strength of a trading strategy
First trading strategy backtest

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Important remark: The results presented above and throughout my blog are no recommendation for your trading! I only share my personal findings and opinions to give ideas and let my followers and copiers know what I am currently working on. I can not guarantee the correctness of my calculations and my presented results. Furthermore past performance is not an indication for future results. Only trade with money you are prepared to lose!