Automated Trading Strategies Guidelines

A Publication of AppleInvestor

Design • Build • Use Automated Trading Strategies A Guide To What You Need to Know

TABLE OF CONTENTS

1.

What Wh at is an Au Auto tom mat ated ed St Stra rat teg egy? y?

2.

Wha hat t are th the Pr Pros/Cons?

3.

Syst Sy stem em De Desi sign gn Gui uide deli line nes s

4.

The Th e De Deve velo lopm pmen ent t Li Life fecy cycl cle e

5.

Strategy Ideas

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Disclaimer

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CHAPTER ONE

What Is An Automated Strategy?

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given more than one explanation or solution, the simplest one is the preferred. - Occam’s razor

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CHAPTER Two

What Are the Pros/  Cons of an Automated Strategy? !"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

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CHAPTER Three

System Design Guidelines

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System Aspects =(3 <37&'2 "? 5 7$7)36 7$7)36 A52 03 IB&)3 A"6#:3HJ C&)( 652$ 6";&2' #5%)78 N" 57 52 5##%32)&A3 "? 7$7)367 7$7)367 <37&'2 $"B 6B7) >2"C C(3%3 )(3 ?"AB7 7("B:< 038 =(3 ?"::"C&2' )"#&A7 5%3 )(3 #%&2A&#:3 )(&2'7 "? A"2A3%2 ?"% 5 7$7)36 <3;3:"#3%G &2 2" #5%)&AB:5% "%<3%8

Testing and More Testing =37)&2'J "% 6"%3 A"%%3A):$ 7)5)3)37)&2' a52< )(3 ?"%C5%< C5:>bJ &7 "? #5%56"B2) &6#"%)52A3 &2 5B)"65)3< 7$7)367 <37&'28 g"C3;3%J <"23 &6#%"#3%:$ A52 :35< )" <&757)%"B7 %37B:)7J "% <&7A5%<&2' 5 #3%?3A):$ '""< 7)%5)3'$8 =(3 #B%#"73 "? )37)&2' &7 )" #%";&<3 5 :3;3: "? A"2?&<32A3 &2 $"B% 7)%5)3'$J 57 &) &7 5##:&3< )" 5 C&<3 %52'3 "? &2&)&5: 52< ?B)B%3 A"2<&)&"278 m"B C52) )" <3)3%6&23 WB7) ("C %"0B7) $"B% 7)%5)3'$ &7 5A%"77 <&;3%73 7&)B5)&"27J C(3)(3% )(5) 03 <&??3%32) 7)"A>7 "% <&??3%32) 65%>3)7J "% 0")(8 =37)&2' 52< "#)&6&[&2' 5 7)%5)3'$ ?"% 5 7&2':3 7)"A> "% 65%>3) A52 :35< )" AB%;3 ?&))&2'J 52< )(5) B7B5::$ :35<7 )" &23??3A)&;3J 2"2T %"0B7) 7$7)3678

Risk Management d52$ )%5<3%7 52< 525:$7)7 )(&2> )(5) C&)( #%"#3% %&7> 6525'3632) $"B A52 65>3  WB7) 50"B) 52$ 7)%5)3 7)%5)3'$ '$ #%"?&)50:38 #%"?&)50:38 e(5) )(3$ B7B5::$ 6352 6352 0$ )(&7 &7 #:5A&2' )&'() 7)"#78 K) 7&6#:$ &7 2") )(5) 357$8 e(&:3 &) &7 )%B3 )(5) 7)"#7T0573< %&7> 6525'3632) A52 03 &6#"%)52)J &) <"37 2") %3#%3732) 5:: #"77&0:3 7":B)&"27 )" %&7> 6525'3632)8 6525'3632)8 f"% 3H56#:3J 7"63 7)%5)3'&37 A52 B73 ;":5)&:&)$ 57 52 3??3A)&;3 %&7> 6525'3632) )"":J "% 5<(3%32A3 )" 7#3A&?&A <36"'%5#(&A7J :&>3 )&637 )" )%5<3J "% 2") )" )%5<3J "% )(3 56"B2) "? :3;3%5'3 )(5) &7 B73<8 n&7> 6525'3632) &7 5 A"6#:3H )"#&AJ )(5) 233<7 )" 03 A"27&<3%3< ?%"6 652$ <&??3%32) 57#3A)7 "? 5 7$7)368 92< &7 "?)32 <3)3%6&23< 0$ )(3 25)B%3 "? )(3 7)%5)3'$J "% )(3 7#3A&?&A A(5%5A)3%&7)&A7 "? )(3 65%>3) 03&2' )%5<3<8 !"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

Risk and Volatility 977377&2' %&7> &7 #5%56"B2)8 F23 7("B:< A"27&<3% )(3 3H)%3637 "? %&7> 52< )(3 )$#378 =(3 ?&%7) &7 3;32) %&7>J 7332 57 B2#%3<&A)50:3 #%&A3 6";3632)8 92< )(3 ")(3% 32< "? )(3 3H)%363 &7 A5)57)%"#(&A %&7>J C(&A( )(%35)327 )" 0%&2' $"B <"C28 m"B% %&7> 7)%5)3'$ 233<7 )" 5AA"B2) ?"%J 52< (52<:3 0")( 3H)%36378 =(3 7)52<5%< ?"% 6357B%&2' 5:: %&7> )$#37 &7 C&)( )(3 7)52<5%< <3;&5)&"2 "? %3)B%27J A5::3< ;":5)&:&)$8 e(32 )5:>&2' 50"B) )(3 ;":5)&:&)$ "? $"B% #"%)?":&"J "% )(3 #3%A32)5'3 "? %&7>J &) &7 &2 )3%67 "? "23 7)52<5%< <3;&5)&"2 "? $"B% 522B5:&[3< %3)B%27 a`, C33>7b8 =(3 '%35)3% )(3 <3;&5)&"2 "? %3)B%27J )(3 '%35)3% )(3 %&7>8

Returns and Rate of Return K7 )(3%3 52$)(&2' 6"%3 &6#"%)52) )(52 %3)B%27p e3::J 2"8 m"B% %3)B%27 52< %5)3 "? %3)B%2 5%3 ?%"2) 52< A32)3% C(32 )37)&2' 52< 3;5:B5)&2' 5A)B5: %3)B%278 K)Y7 )(3 #%&65%$ )(&2' ?"% <3)3%6&2&2' &? 5 7)%5)3'$ &7 #3%?"%6&2' "% 2")8 4":5)&:&)$ (57 5 <&%3A) A"%%3:5)&"2 )" %3)B%27J &) C&:: B:)&65)3:$ <3)3%6&23 $"B% 3H#3A)5)&"278 K) &7 037) )" )5:> "? %3)B%27 &2 )3%67 "? 522B5:&[3< <5)58 =(5) C5$ $"B A52 5:C5$7 A"6#5%3 7$7)367 0573< "2 A"6#5%50:3 <5)58

“

To be uncertain is to be uncomfortable, but to be certain is to be ridiculous. - Chinese Proverb

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Draw Down A drawdown is the reduction of capital after a series of losing trades. This is normally calculated by getting the di"    erence between a relative peak in capital minus a relative trough. Draw down is noted as a percentage of the initial trading capital. Every system has drawdowns, no matter how smooth your optimized and curve fitted equity curve looks. Your job is to understand and minimize the frequency and depth of drawdowns.

Probability =" #%"050&:&)$ "? 7"63)(&2' "AAB%%&2'J "% 73:3A)&2' 7"63)(&2'J A52 "2:$ 03 6357B%33 )(3 #%"050&:&)$ "? <%5C&2' 5 )$#3 "? C&22&2' (52< &2 #">3%8

P) O1J /@ 7%,-#G,# 7%,-#G,#21-# 21-#/85 /85 =(3 #%"050&:&)$ "? )C" "AAB%%32A37 (5##32&2' &2 7BAA377&"2 &7 )(3 6B:)&#:&A5)&"2 "? )(3 )C" &2<&;&3 )(3 7)5%) "? 5 C&22&2' 7)%35>8

“

From principles is derived probability, but truth is obtained only from facts. - Dixon G. Watts

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"#$%&' P5 1IB&)$ A(5%)7 5%3 52 &6#"%)52) )"": ?"% 3;5:B5)&2' :"2' )3%6 #3%?"%652A38 XB) $"B 233< )" B2<3%7)52< C(5) )" :""> ?"%8

Conclusion There are many more important topics you will need to not only be aware of, but need to develop mastery over. These guidelines will keep you focused on the most important aspects when designing your automated systems. The thing most people don’t consider when developing a system, no matter how simple or comprehensive your system is…you are putting it to work in a market where the unexpected is a virtual certainty. And even the most sophisticated system can’t account and handle all possibilities. However, following guidelines, guidelines, and keeping the important things front and center, will give you a very good chance of creating a profitable system.

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CHAPTER Four

The System Development Lifecycle

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Design Lifecycle Kaizen - a Continuous Improvement Process q5&[32 q5&[32 &7 52 52A&32) r5#52373 #(&:"7"#($ )(5) 63527 '""< A(52'38 K)Y 5 %3A"'2&)&"2 )(5) 6"7) 3;3%$)(&2' &7 &2 ?:BH 52< A(52'&2'J &) &7 )(3 "23 A"27)52) A"27)52) C3 A52 A"B2) "28 N"J "B% <3;3:"#632) #%"A377J 3;32 "B% )%5<&2' 7("B:< 5AA"B2) ?"% )(5) A(52'3J 3H#3A) &) 52< 3;32 360%5A3 &)8 N"J 03:"C &7 )(3 A"2)&2B"B7 &6#%";3632) #%"A377 "% :&?3A$A:3 C3 B73 )" <3;3:"# 7$7)3678

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Everything Starts with the Big Idea m"B (5;3 )" 7)5%) 7"63C(3%3J 52< )(5)Y7 C&)( )(3 &2&)&5: &<35J 7"63)(&2' )(5) $"B 03:&3;3 (57 5 '""< A(52'3 "? 3H#:"&)&2' 52 3<'38 K)Y7 5:: 50"B)J ?&2<&2' 52 3<'3J ?&2<&2' 7"63)(&2' )(5) ")(3%7 65$ (5;3 ";3%:"">3
Where Are the Ideas? e(5) $"B 5%3 :"">&2' ?"% 5%3 #5))3%27 &2 )(3 65%>3)J )("73 #5))3%27 A"B:< 5##35% &2 ?B2<5632)5: <5)5 "? &2<&;&3)7J 65%>3)7J #%&A3 5A)&"2 aA(5%)7bJ )(3 %3:5)&"27(&# %3:5)&"27(&# 03)C332 0"2<7 52< AB%%32A&37J "% )(3 5??3A) 5??3A) "? 3A"2"6&A %3#"%)78 =(&7 &7 0$ ?5% 2") 5 A"6#%3(327&;3 A"6#%3(327&;3 7A"#3 ?%"6 C(32A3 &<357 A"63J )(3%3Y7 5 C&<3 ;5%&3)$ "? 5%357 )" <&' B# 7)B??J &) C"B:< )5>3 73;3%5: 3X"">7 )"  WB7) 7A%5)A( 7A%5)A( )(3 7B%?5A38 7B%?5A38 F2A3 $"B (5;3 ?"B2< 52 &<35J 52< %3A"'2&[3< 5 %3AB%%&2' #5))3%2 )(5) 65$ 03 3H#:"&)50:3J 3H#:"&)50:3J )(3 23H) 7)3# &7 )" 0B&:< 5 6"<3: 52< )37) $"B% ($#")(37&78 d"<3:&2' 52< C5$7 )" 6"<3: &7 WB7) 57 0&' 5 7B0W3A) 57 C(3%3 )" ?&2< &<3578 d"7) #3"#:3 7)&A> C&)( 5 7#3A&5:)$J 0B) )%B)( 03 )":3 52$ #%"?377&"2J &)Y7 '""< )" 03 ?56&:&5% C&)( 5 2B603% "? )3A(2&IB378

Building a Model =(3 #B%#"73 "? 5 6"<3: &7 )" 0")( 3H#:5&2 52< ?"%3A57) ("C #%&A3 A(52'37J "% C(3)(3% 5 65%>3) 6&'() 03 ";3% 3H)32<32"C:3<'3 >2"C:3<'3 "? )(3 <"65&2 $"B &2)32< )" )%5<38 =(3 037) 6"<3:7 5%3 )("73 )(5) 7#3A&?&A )(3 %3:5)&"27(&# 52< 73) )(3 ?5A)"%7 &2 5<;52A3J )(32 )37) )(3 6"<3: ";3% %3567 "? <5)5 )" ;3%&?$ )(3 #%36&738 K? $"B 32'5'3 &2 5&2' 7"63)(&2' C"%> C&)( )(3 0323?&) "? (&2< 7&)38 =(373 6"<3:7 %5%3:$ 5%3 3??3A)&;3 "2 23C <5)5 "2 5 A"27&7)32) 057&78 !"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

Evaluate and Pivot =(3 &<35 $"B 7)5%) C&)( &7 "?)32 <&??3%32) )(52 )(3 "23 $"B 32< B# C&)(J )(&7 &7 2") B2B7B5: )(3 A573 3 5 A"6#:3)3:$ <&??3%32) <&%3A)&"28 =(3 >3$ &7 2") )" 03 ':B3< )" $"B% "%&'&25: #%36&73 &? 7"63)(&2' 7B%#%&7&2':$ '""< )5>37 $"B &2 5 A"6#:3)3:$ <&??3%32) <&%3A)&"28 N"63)&637 N"63)&637 '""< &<357 5%3 :&>3 )(5)J '""< :BA> &7 0"%2 "? (5%< C"%>J 52< &2)&65)3 >2"C:3<'3 >2"C:3<'3 "? $"B% 6"<3: 52< <"65&28

Build Rules nB:37 5%3 &66B)50:3J 5) :357) "2A3 )(3$ 5%3 &2 #:5A38 XB) A%35)&2' %B:37 &7 5 #%"A377 )(5) %3IB&%37 &2)&65)3 &2)&65)3 >2"C:3<'3 "? $"B% 6"<3: 52< ("C &) 03(5;37 B2<3% 5 C&<3 %52'3 "? 7&)B5)&"278 nB:37 '323%5::$ &2A:B<3 )(3 :&6&)7 $"B #B) "2 )(3 7)%5)3'$J %&7> 52< 6"23$ 6525'3632)8 XB) )(3$ 65$ 5:7" &2A:B<3 (52<:&2' )(&2'7 7#3A&?&A )" )(3 5773)J :&>3 A"2)%5A) %":: ";3%7 "% 35%2&2'7 <5)378 K? $"B 5%3 0B&:<&2' 5 7$7)36 0573< "2 )3A(2&A5: #5))3%27J 652$ "? )(373 %B:37 5%3 C3:: 37)50:&7(3<8 37)50:&7(3<8 K)Y K) Y7 B7B5::$ 5 '""< &<35 )" B73 B 73 )(373 %B:37J B2:377 $"B ?"B2< 5 A:35% 52< 6357B%50:3 3<'3 )(5) <&A)5)37 7"63)(&2' 3:738 K)Y7 (5%< )" ";3%7)5)3 )(5) $"B% >2"C:3<'3 "? $"B% 6"<3: &7 0$ ?5% )(3 0&''37) 5<;52)5'3 $"B (5;3 &2 <3;3:"#&2' 5 #%"?&)50:3 7$7)368 K? )(&7 7"B2<7 :&>3 KY6 %3#35)&2' 6$73:?J )(32 7" 03 &)8 N" :"2' 57 &) 65>37 5 :57)&2' &6#%377&"2 B#"2 $"B8

“

You have to learn the rules of the game. And then you have to play better than anyone else. - Albert Einstein

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Check for Robustness 9 '""< 5B)"65)3< 7)%5)3'$ C&:: C"%> 5A%"77 <&??3%32) 5773)7J "% 5A%"77 <&??3%32) 65%>3)78 9 7)%5)3'$ 65$ (5;3 5 #5%)&AB:5% 2&A(3J ?"% 3H56#:3 &) &7 <37&'23< )" )5>3 5<;52)5'3 "? (&'( 03)5 7)"A>7J 7" &2 &) 7("B:< C"%> &2 5 A"27&7)32) 65223% 5A%"77 5 C&<3 %52'3 "? (&'( 03)5 7)"A>78 K? &) C"%>7 ?"% "23 7)"A> 52< ?5&:7 "2 ")(3%7J )(32 )(5) 7)%5)3'$ &7 ?%5'&:38 X5A>)37)&2' =(3 ?B%)(3% 05A> $"B A52 '" C&)( 05A>)37)&2'J 52< 7("C A"27&7)32) %37B:)7J %37B:)7J )(3 03))3%8 =(3 6"%3 <5)5 #"&2)7 $"B A52 '3) &2 $"B% )37)7J )(3 6"%3 )%5<37 $"B A52 7("CJ )(3 '%35)3% :&>3:&(""< $"B% 7)%5)3'$ C&:: 7("C #"7&)&;3 %37B:)7 &2 )(3 ?B)B%38 F23 C5$ )" A"6#5%3 7)%5)3'&37J &7 )" 5##:$ 5 7&6#:3 ?"%6B:53 ?"% %"0B7)23778 K) %3IB&%37 )(5) $"B (5;3 )(%33 <5)5 #"&2)7 ?"% A"6#5%&7"2G )(3 #%"?&) ?5A)"%J )(3 C&2 %5)3 52< )(3 %5)&" "? 5;3%5'3 #%"?&) )" :"778 g3%3Y7 )(3 ?"%6B:5\

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Backtesting X5A>)37)&2' &7 )(3 #%"A377 "? %B22&2' $"B% 7)%5)3'$ 5'5&27) (&7)"%&A <5)5J 52< '323%5)&2' 7)5)&7)&A7 )(5) A52 03 3;5:B5)3<8 =(3 '"5: "? 05A>)37)&2' &7 )" 733 ("C $"B% 7)%5)3'$ #3%?"%67 5'5&27) ;5%&"B7 A"2<&)&"278 K) &7 5:7" )(3 '"5: )" ?&2< )(3 "#)&65: A"2?&'B%5)&"2 5A%"77 )(373 A"2<&)&"278 =(3 %52'3 "? A"2<&)&"27 C&:: ;5%$ <3#32<&2' B#"2 )(3 7)%5)3'$J 0B) &) A"B:< 03 <&??3%32) 7)"A>7J 5773) A:57737J 65%>3)7J 3A"2"6&A A"2<&)&"27J C(5)3;3% &7 %3:3;52) )" )(3 #B%#"73 "? )(3 7)%5)3'$8 =(3 =%5<37)5)&"2 #:5)?"%6 (57 5 A"6#%3(327&;3 05A>)37)&2' 7$7)368 K) 5::"C7 $"B )" )37) ;&%)B5::$ 3;3%$ A"2<&)&"2J ?"% 52$ #3%&"< "? )&638 =(3 '323%5)3< %3#"%) &7 5 A"6#%3(327&;3 73) "? 7)5)&7)&A7J )%5<37 52< A(5%)7 )(5) #%";&<3 5 ?B:: ;&3C "? $"B% 7$7)368 =(3 05A>)37)7 5%3 A"2
"#$%&' S5 =%5<37)5)&"2 N)%5)3'$ @3%?"%652A3 %3#"%) 7("C&2' 7)5)7 52< 5;3%5'3 6"2)(:$ #%"?&)8

Simulate Before going Live =(3 "#3%5)&;3 C"%< &2 %3:357&2' $"B% A%35)&"2 )" )(3 %35: C"%:< &7 #5)&32A38 =37) C&)( 7&6B:5)3< <5)5 03?"%3 $"B A"66&) %35: 6"23$8 9::"C&2' 5 #3%&"< "? )&63 ?"% $"B% 7)%5)3'$ )" %35A) )" %35: C"%:< <5)5 C&:: $&3:< &2;5:B50:3 &2?"%65)&"28 =(3 0&' IB37)&"2 &7 <3A&<&2' ("C :"2' &7 :"2' 32"B'( ?"% $"B% )37)&2'8 =(&7 &7 5 A"6#:3H IB37)&"2J 03A5B73 &) <3#32<7 "2 5 2B603% "? A"2<&)&"27J 7BA( 57 )(3 )&63?%563 )(3 7$7)36 )%5<37 &2J C(3)(3% )(3 &2&)&5: A"2<&)&"27 (5;3 )37)3< $"B% #%36&73 7B??&A&32):$8 e(5) &) 5:: A"637 <"C2 )" &7 )(&7Z<" $"B (5;3 32"B'( <5)5 )" 65>3 5 7)5)&7)&A5::$ 7&'2&?&A52) A5738

Go Live or Not m"B (5;3 )(3 05A>)37)333< )(5) &)Y7 %"0B7) 52< 5AIB&%3< 32"B'( <5)5 ?%"6 %B22&2' 5'5&27) :&;3 B2756#:3< <5)58 L"C &)Y7 )&63 )" <3A&<3J <" $"B %3:3573 &) )" )(3 C&:< 52< )%B7) &) C&)( %35: 6"23$p K)Y7 52 3HA&)&2' #%"#"7&)&"2 )" #B) $"B% A%35)&"2 &2)" #%"&2' 6"23$8 92< &? $"B (5;3 '%35) A"2?&<32A3 &2 $"B% ?5&:T75?37J $"B% 6"23$ 52< %&7> 6525'3632)J )(32 :3) &) '"8 XB) &)Y7 5:6"7) 5:C5$7 5 03))3% &<35 )" '" 05A> )(%"B'( $"B% 'B&<3:&237 A(3A> :&7)J 65$03 6"%3 )(52 "2A3J 03?"%3 $"B '" :&;38 9:7"J &? #"77&0:3J &)Y7 #%"050:$ 5 '""< &<35 )" 7)5%) C&)( )(3 765::37) #"7&)&"2 7&[3 #"77&0:3J 7" :"2' 57 )%5<3 A"7)7 <"2Y) 03A"63 )"" 0&' "? 5 ?5A)"% &2 $"B% ?&25: '"T 2"'" <3A&7&"28 n363603%J )(3%3Y7 2" 7(563 &2 '"&2' 05A> )" )(3 <%5C&2' 0"5%
!"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

CHAPTER Five

Strategy Ideas

Strategy Ideas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nNK "% N)"A(57)&A8 m"B 0B$ C(32 ";3%7":3) &2<3H8

“

We have always been shameless about stealing great ideas. - Steve Jobs

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Strategy Ideas =(3 )&63?%563 $"B% 7)%5)3'$ C"%>7 &2 A"B:< (5;3 #%"?"B2< 5??3A) "2 )(3 %3)B%27 &) 65>378 9:7" )(3 )&63 "? <5$J "% %52'3 "? <5)37 &) &7 5::"C3< )" )%5<3 A52 03 (B'3 <&??3%32)&5)"%78 =(3 A("&A37 $"B 65>3 C&:: %3?:3A) $"B% >2"C:3<'3 "? )(3 <"65&28 n363603% C(32 C3 )5:>3< 50"B) 6"<3:&2' &2 )(3 :&?3 A$A:3 "? <37&'2&2' 7$7)367J 52< ("C &6#"%)52) &) C57 )" B2<3%7)52< $"B% <"65&2p g3%3 5%3 ?"B% 057&A A5)3'"%&37 "? 5:'"%&)(6&A )%5<&2' 7)%5)3'&37J )(3$ 5%3 :&7)3< &2 "%<3% "? #"#B:5%&)$J 2") 23A3775%&:$ &2 "%<3% "? #%"?&)50&:&)$\ h

C&'8A @/,,/J#8$  T l&%3A)&"25: 7)%5)3'$J )(5) A52 03 0B::&7( "% 035%&7(8

h

C&'8A &';'&41,  T &<32)&?&37 )(3 #&;") #"&2)7J "% A$A:&A5: 25)B%3 "? 5 73AB%&)$8

h   T/,1-#,#-. T )(3%3 5%3 5 C&<3 %52'3 "? ;":5)&:&)$ )%5<37J ?%"6 73::&2' "? "#)&"27 #%36&B6J )" A"2)52'" 52< 05A>C5%<5)&"28 h   *&+#-&1$' T 65%>3) 23B)%5:J 3;5:B5)37 )(3 %3:5)&"27(&# 03)C332 73AB%&)&37 "% 65%>3)7J 52< #%"?&)7 ?%"6 5 <&;3%'32A3 &2 )(5) %3:5)&"27(&#J ?"::"C3< 0$ 52 5:6"7) A3%)5&2 %3'%377&"2 05A> )" )(3 63528 g&'( ?%3IB32A$ 5:'"7 5%3 B7B5::$ )(&7 )$#38

C&'8A @/,,/J#8$  &7 5:7" 52 357$ )" B2<3%7)52< #%"0:36J 52< &) A52 03 )%3632<"B7:$ #%"?&)50:3J 37#3A&5::$ &2 :"2'3% )&63?%5637 &? $"B #&A> )(3 %&'() <&%3A)&"28 m"B A52 5:7" 3H#3%&32A3 )%3632<"B7 <%5C<"C27J 03A5B73 "? )(3 :5)&)B<3 $"B 6B7) 5??"%< )(373 )$#37 "? 7)%5)3'&378 =(3$ B7B5::$ C"%> 037) C&)( 5<;52A3< 6"23$ 6525'3632)8 C&'8A &';'&41,J )%&37 )" #&A> )"#7 52< 0"))"67J ";3%7":< 52< ";3%0"B'()J 7B##:$ 52< <3652 )"#7 52< 0"))"67J )(3$ 5%3 7" 3:B7&;38 N" C(&:3 )(3 #%"0:36 73367 %3:5)&;3:$ 357$J )(3 7":B)&"2 5##5%32):$ &7 IB&)3 <&??&AB:)8 T/,1-#,#-. &7 2") C3:: B2<3%7)""< 0$ 6"7) )%5<3%7J &) &7 A"6#:3H 5) 52$ C33>:$ A(5%) "? 5 ;":5)&:&)$T0573< 1=f8 !"#$%& ()*+ ,$-% ./01/023 #4")3"5 !"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

Volatility Example g3%3Y7 5 ;":5)&:&)$ 7)%5)3'$ 0573< "2 X"::&2'3% 052<78 K)Y7 A5::3< )(3 l"B0:3 X"::&2'3%8 K) C"%>7 037) C&)( (&'( 03)5 7)"A>7J )(5) 5%3 )%32<&2' &2 WB7) 50"B) 52$ )&63?%5638 =(3 7)%5)3'$ B737 )C" 32;3:"#&2' X"::&2'3% 052<7J 52< 2" 7)"#78 =(3 7)%5)3'$ #%";&<37 25)B%5: 7)"#78 g3%3Y7 52 &::B7)%5)&"2 "? ("C )(3 7)%5)3'$ &7 6"<3:3<\

"#$%&' U) l"B0:3 X"::&2'3% 052<7J C&)( )(3 6";&2' 5;3%5'3 5) ,R 52< )(3 "B)3% 052< 73) 5) .8` 7)< <3;J 52< &223% 5) -8O` 7)< <3;8

=(3 7)%5)3'$ )%&37 )" A5#&)5:&[3 "2 7)%"2' 6";378 g3%3Y7 )(3 5:'"%&)(6\ Buy 2X positions if price closes above the outer upper band Sell 1X position if price closes below inner upper band Sell 1X position if price closes below moving average Sell 2X positions if price closes below the outer lower band Buy to cover 1X position if price closes above inner lower band Buy to cover 1X position if price closes above moving average

!"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

Strategy Filters =(3 057&A #%36&73 "? $"B% 7)%5)3'$ 7)%5)3'$ 7("B:< #%"3 652$ ?"%678 =(3 037) C5$ )" ;&3C )(36 &7 57 2"&73 7B##%377"%78 f&:)3%7 %36";3 )(3 '""< C&)( )(3 05
"#$%&' V) d"632)B6 7)%5)3'$ C&)( 5 ;":5)&:&)$ %5)3 "? A(52'3 ?&:)3%8

!"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

Strategy Components 97 $"B 0B&:< 5 :&0%5%$ "? 7)%5)3'&37J $"B C&:: 03'&2 )" %35:&[3 )(5) 6BA( "? )(3 ?B2A)&"25:&)$ A52 03 %3B73< 5A%"77 )(3 A"%3 &<3578 =(&2'7 7BA( 57 7)"#7J 52< )%5<3 :5<<3%7J 52< ?&:)3%78 K) C"B:< 03 5<;&750:3 )" 0B&:< 52< )37) )(373 A"6#"232)7 73#5%5)3:$J 52< 5<< )(36 &2 B7&2' 5 >&2< "? #:B' 52< #:5$ 5%A(&)3A)B%38 5%A(&)3A)B%38 =(&7 C5$ $"B C&:: 75;3 5 )%3632<"B7 56"B2) "? 3??"%) 52< )&63J 52< &2A%3573 )(3 7)50&:&)$ "? $"B% 7$7)367 652$ ?":<8 =(3 #%3;&"B7 3H56#:3 &7 5 '""< 3H56#:3J C(3%3 )(3 7)%5)3'$ 52< ?&:)3%7 5%3 &6#:3632)3< 57 &2<&A5)"%7J 52< A52 03 B73< 57 '%5#(&A5: 'B&<37 C(32 A%35)&2' $"B% 7)%5)3'$8

!"#$%&'() + ,-./ 0$ 1%2&3 45%&)&6"78 9:: %&'()7 %373%;3<8

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