Example of Simulated Profitability

Stock Prophet has been used to generate an example trading signal for the U.S. Treasury Bond futures contract . The example is based on employing five different intermarket indicators to predict the T-Bond price trend. The indicators included one based on the price of the T-Bond, another based on a statistical price/volume relationship (unique to Stock Prophet), the CRB index, the dollar index, and the T-Bill futures contract. These intermarket indicators were selected using the Stock Prophet indicator correlation option to select indicators and indicator parameters having good prospects for predicting the future T-Bond price trend. The indicators were then combined into a SINGLE indicator of the likely future T-Bond price trend. Training was over the last 2.5 years of historical price data available as of the last trading day of 1993 and was accomplished in about 1 minute. The resulting price trend indicator was tested on the T-Bond price during the entire year of 1994, as shown in the figure. Notice that the information in 5 indicators has been reduced to a SINGLE clear signal. The signal indicates a long position when the signal is above zero and short when the signal is below zero. The signals are given 5 days BEFORE execution of the trade. Notice that only 9 Round turn trades (and one open trade) were indicated during the entire year. The result was nine winning trades out of nine with a profitability, trading a single contract, of 32 points ($32,000) on a typical margin of $3000.

Keep in mind that this example provides a very severe test for any trading system development tool. The training period consisted of a long term up trend bull market while the testing period was a long term down trend bear market. In addition, no retraining of the indicator occurred during the year. Using recommended procedures, the network would have been retrained at least every couple of weeks during the year using all available data. The recommended procedure would be expected to produce even better results.

Time efficiency