In the April issue of RINA Systems' Performance Update:

         Feature Highlight – Updated Simple Breakout Strategy
         New Information – Pre-Release Notes For Portfolio Evaluator 7

Feature Highlight - In this month’s edition of the Performance Update, we highlight a simple range breakout strategy that was initially implemented in our July 2000 newsletter. This primitive system’s entry logic is based on a breakout of 150% of the previous day’s range, on both the long and short side. We use a fixed two-bar exit logic (next day’s close) over a 10 year look-back period, as this strategy abruptly takes advantage of breakouts in the short term horizon. In the previous newsletter we tested 6 different currency/debt markets (US, DM, AD, CD, MB, and JY), but in this month’s release we have substituted the Swiss Frank for the Deutsch Mark (as the DM has been replaced by the Euro), and the ten-year note contract has replaced the municipal bonds contract.

Utilizing Money Manager 6, we applied a percent volatility position-sizing strategy that risks a percent of the portfolio equity on each trade, based on the daily dollar volatility of the security being traded. To assess volatility, we use average true range (ATR) over a user-defined look-back period multiplied by the given security's point value. For this study, we used a 10-day look-back period to calculate the average true range, and set the maximum number of contracts parameter to 50 contracts for our position sizing parameters. We tested two different inputs for our percent volatility application, at 2.5% and 3.5% of total portfolio equity. You can see the full PortfolioStream 4.5 report for each parameter by clicking the corresponding link below:

Ø        Short-Term Breakout, 1990-1999, fixed position size at 1 contract
Ø        Short-Term Breakout, 1990-1999, 2.5 percent volatility
Ø        Short-Term Breakout, 1990-1999, 3.5 percent volatility

Ø        Short-Term Breakout, 1994-2004, fixed position size at 1 contract
Ø        Short-Term Breakout, 1994-2004, 2.5 percent volatility
Ø        Short-Term Breakout, 1994-2004, 3.5 percent volatility

Performance Results - during the period of  July 1990 - July 1999:

Performance Results - during the period of  July 1994 - April 2004:

The charts above provide a quick snapshot of how the various parameters of our simple range breakout strategy performed, relative to one another. Looking at net profit data, it is immediately apparent that the earlier study from 1990-1999 was far more profitable than the recent study, for both percent volatility parameters. In both cases however, the 3.5% risk parameters had slightly lower profit factors than their 2.5% counterparts, while making significantly more profit. The maximum draw-down on total equity was inherently much larger with the 3.5% volatility, as you are increasing your risk tolerance. The number of trades generated over the two different 10 year horizons were very similar, at 3581 and 3612.

Although the simple range breakout strategy proved to be much more profitable in the early runs, we can see that the increased risk over the same periods also led to higher net profits. Moreover, an application of this simple position sizing strategy retrospectively had a very substantial impact on the profits as show in the equity curves below.

Since we first presented this range breakout system back in July of 2000, we can see that the performance has deteriorated somewhat. You can see in the equity curves below how they have flattened significantly.

For more information about PortfolioStream - Click Here.
For more information about PortoflioStream - Version 4.5 - Click Here.

Notes on studies:

The average trade value is on a per trade basis. Nearly all of the trades simulated here were multiple contract trades due to the fact they were geared to risk 1% based on a hypothetical constant funding of 1 million dollars. The per-contract average trade would have obviously been much smaller. Finally, the maximum drawdown is the largest peak to trough dollar drawdown for the portfolio during the tested period.

Portfolio Evaluator 7 is the newest version of our award winning Portfolio Evaluator software. Portfolio Evaluator 7 has many new features and here is a first glimpse of just some of the new functionality that will be offered when released, which is expected in late May.

Portfolio Constraints

Users can now generate more realistic simulations by limiting the maximum position in sectors or the entire portfolio using several standard measurements of exposure. This capability increases your ability to test your portfolio in much the same way one would have or prefer to trade it given real world constraints. For example, know what your performance would have been had trades that exceeded a 50% margin to equity ratio been rejected, or if extreme exposure in one sector was not permitted. Up to 10 constraints can be applied to a portfolio simultaneously to add a greater realism to your research. The constraints that can be applied to a portfolio are listed below.

Types Of Constraints:

Margin on entire portfolio relative to equity
Margin on entire portfolio relative to fixed capital
Margin on a sector relative to equity
Margin on a sector relative to fixed capital

Maximum Open Position on entire portfolio relative to equity
Maximum Open Position on entire portfolio relative to fixed capital
Maximum Open Position on a sector relative to equity
Maximum Open Position on a sector relative to fixed capital

Maximum Long Open Position on entire portfolio relative to equity
Maximum Short Open Position on entire portfolio relative to equity
Maximum Long Open Position on entire portfolio relative to fixed capital
Maximum Short Open Position on entire portfolio relative to fixed capital

New Graphing Capabilities

Users now have a wider array of graphs to analyze performance. New Graphs include - Rolling 12, 24, And 36 Month Sharpe Ratios, VAMI Charts With Drawdown, Return And Drawdown Bar Charts By Month, The Number Of Open Positions In The Portfolio Over Time. In addition, all the data displayed on a graph can be exported to a text file for additional analysis, drastically increasing the amount of data that can be exported from Portfolio Evaluator.

Portfolio Position Report

See the positions in a portfolio for any day in history. Know exactly which positions and in what quantities were held in the portfolio. This report was one of our customers most highly requested additions to Portfolio Evaluator 7. Many others major features will be available in Performance Suite 7, and we will describe the rest of them in the next issue of Performance Update.

The purpose of the Performance Update newsletter is to offer ideas and educational samples of strategies through the use of RINA Systems software applications. The strategies described in the Performance Update newsletter are not intended to be used as actual trading strategies, but are included for educational purposes only. No offer or solicitation to buy or sell securities, commodities or securities derivative products of any kind, or any type of trading or investment advice, recommendation or strategy, is made, given or in any manner provided by RINA Systems or any of its affiliates. If such advice is sought, the services of a licensed professional should be obtained. Past performance, whether actual or indicated by historical, simulated tests of strategies, is no guarantee of future performance or success. Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record simulations do not represent actual trading. Also since the trades have not actually been executed the results may have under - or over - compensated for the impact if any, of certain market factors such as liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. There is a significant risk of loss involved in futures and securities trading. RINA Systems, Inc. will not be responsible for any losses or lost profits resulting from investment decisions based on any RINA Systems product or service information obtained through use of any RINA Systems product or service or otherwise. TradeStation® and EasyLanguage® are registered trademarks of TradeStation Technologies, Inc.