es 3.6A-D).

From these graphs you can see that the system stays very stable
against parameter variation in the chosen area. Although the total net profit va
ries in a
relatively big range (between $20,000 and $100,000) it stays clearly positive fo
r all
selected input parameters. The best profits of nearly $100,000 are achieved in t
he region
when the fast moving average is very small (< 3) and the slow moving average is
between
30-50. This is also the area with the smallest maximum intraday drawdowns of abo
ut
$15,000. Over all parameters the maximum intraday drawdown does vary quite a lot
but
never becomes excessive it always stays below about $35,000.
Like the total net profit and the maximum intraday drawdown you can plot further
important statistical figures as a function of the two input parameters (Figures
3.6C and
D). If you do so you get further valuable insight into your trading system. If y
ou watch,
for example, the total number of trades of the system (Figure 3.6D) you can see
a fact
which holds true for many trend following systems: the slower you make them to r
eact
(in our case the longer the look-back periods of the two moving averages are) th
e less
trades you get. By changing the input parameters of the system you have the poss
ibility
of affecting some key attributes which allows you to adapt a system better to yo
ur trading
style or to the requirements of a money management scheme in a bigger portfolio.
Lets
say you have many fast-reacting systems in your portfolio and need more slow-rea
cting
components you may achieve this by choosing longer look-back periods for the mov
ing
averages. If you need a faster-reacting system you make the input parameters sma
ller.
Well come back to this observation in our portfolio building section when correla
tions
between different trading systems and their different time scales become importa
nt.
Interestingly, in our trading system, while the number of trades changes a lot w
ith the
systems input parameters, another trading figure, the average profit per trade, s
tays relatively
stable (Figure 3.6C). It varies between $10 and $50 but mostly stays between $30
and $40,
especially for all fast moving averages between 1 and 9 and the slower averages
between
30 and 50.
From these results you can conclude that good system parameters will be an
instantaneously reacting fast moving average (< 3) and a slow moving average bet
ween
53Trading Systems
30 and 50. Lets take the value 1 as input value for the fast moving average. I