Trading System #2–Consecutive Directional Close (Part 8)

In http://www.optionfanatic.com/2012/11/20/trading-system-2-consecutive-directional-close-part-7, I found the CDC trading system to perform better without trade delays.  Today I want to put this conclusion into perspective.

Even with trade delays, the CDC system is worth pursuing.  A mean RAR/MDD of 16.50 and mean profit factor (PF) of 1.90 are worthy enough statistics to shake a stick at.

Furthermore, while it may be necessary in some cases to trade at the next open, in other cases no trade delay will be needed.  As an example, consider the CDC system with x = 4 where four consecutive up or down closes triggers a trade.  If SPY has closed higher each of the last three days and is currently up 3% with just minutes left in the trading session then I can reasonably proceed with a trade.  SPY would have to catastrophically tank in the remaining time to close lower and I know in my experience of watching this market that such an occurrence would truly be a Black Swan.  On the other hand, if the market has been choppy all day moving back and forth between positive and negative territory then heading into the close I truly may have no clue whether the final print will be up or down.  In this case I will be forced to wait until the following open to trade.

As mentioned above, the CDC system is worth pursuing even with trade delays.  At least sometimes if not often, however, trade signals will be clear heading into the close and no delay will be needed.  I can therefore interpret these backtesting results to be better than the minimal, yet acceptable, performance numbers mentioned above (i.e. RAR/MDD > 16.50 and PF > 1.90).