Been almost a week since I posted. I have been tying to code my System 2 into my backtesting software. I just got my hands on the first batch of results. System 2 at this stage is improved with a filter that I implemented. I have placed the portfolio performance of the two variations together to show the improvement.
1. This performance report shows the system with a filter.
2. This performance report shows the system without a filter.
3. The images below are the equity curve (log) plus the underwater drawdown graph and the yearly performance of the system 2 with a filter
From a analytical point of view, implementing the filter improved the MAR ratio by 12.67%, the Sharpe ratio by 13.9%, the average win/loss ratio by 13.3%.
In terms of risk reward, I was able to improve the compound annual ROI by 2.67% while decreasing maximum drawdown by 9.33%.
In conclusion, I am very happy with the initial round of results. I would like to further improve the MAR ratio as I would like to have a return that is greater than the maximum drawdown. The next measure I will implement is the adding a trailing stop mechanism that will adjust itself accordingly to volatility.