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How We Achieved
100% Mechanical Tradability
ARM2
Release 4
In May 2003 Nirvana disclosed the
latest research on Valid Trend Lines
leading to ARM2 Release 4. Back tests
show that ARM2 is capable of generating
raw signal accuracies of 70% to 80%.
However,
good
entries are only one component of
a successful system. To make money
using any system, the Profit/Loss
ratio must be kept as high as possible,
and trades must be managed to closure
by an intelligent money management
approach.
Tradability
Index
The Tradability Index ("TI"),
developed in our Nirvana Labs this
year, is the second key ingredient.
TI uses the history of a chart to
assess "tradability," identifying
those charts where the probability
of an adverse move is low. The Tradability
Index is defined on a scale from 0
to 100, where 0 indicates a poorly-behaving
chart and 100 indicates an ideal chart.
The
following chart illustrates how the
Tradability Index works. In the period
through 2000 and 2001, movement was
choppy and erratic, and TI was low
during this time. However, on the
right side of the chart, the moves
smooth out and the Tradability Index
rose to cross the 80 level, which
we then use as a cutoff for new signals.
Tradability
rose above the 80 level in mid-2001,
represented by the shaded area on
the indicator plot.
click
to enlarge
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