THE MAR RATIO EXPLAINED + New pick.. Claymore/Delta Global Shipping (SEA)

TODAY IN THE MARKET - Easing concerns over global credit problems and more signs of corporate dealmaking nudged major stock indexes to new highs for the year.

Stock indicators rose but posted uneven advances Monday following news that Abu Dhabi had extended $10 billion to Dubai to help the Middle Eastern city-state stay afloat. Markets had been worried in recent weeks that debt problems in the former boomtown could send ripples through global credit markets. (commentary & photo courtesy of AP News)

If you have been following this blog for a while, you are aware that this blog is not only about investing in ETFs but it is also about trading system development. So if this subject is of interest to you please read further.

RSI has made a selection so let's see it:

• Buy  925 shares Claymore/Delta Global Shipping (SEA) at the market open tomorrow. Set a stop loss $0.98 below your fill price.

I will be buying SEA at the open, but I want to see the opening bid/ask spread and if too large I will place a limit order. I suggest you use a similar tactic. FYI- SEA pays a 3.8% yield, which in these times is pretty large.

The chart shows that SEA is in a possible uptrend, assuming it is tracing out higher highs and higher lows. It should be interesting.... global shipping just may be the ticket.

This weekend I did extensive testing of several trading modules. How do I include/exclude a module from the RSI system? Rather than using the highest absolute profit, I use other criteria that helps this decision. As an example, for each $1,000 of portfolio risk I like to have at least $600 to $1,200 average return per trade and at least 55% win ratio. Within those parameters I want a MAR ratio of at least 2.0. The MAR ratio is the ratio of the average annual return divided by the largest percentage draw down.  It is a measure of the risk adjusted return and it is a great number to maximize when running optimizations. I developed a promising module that had great profit numbers but I could not achieve decent MAR performance. So I ended up dropping it from consideration. This is reminiscent of my days in aeronautical/rocket research when we went down blind alleys in pursuit of better solutions.

Okay, the following are the results of a recent investigation of varying the stop loss factor on the resulting MAR ratio for a RSI module.

 

This module was originally designed with a Kstop factor of 1.0, but the analysis showed a Kstop value of 0.6 produced a 50% improvement in the MAR ratio. This improvement results in a huge enhancement in trading system performance. This is what I like to see.

I've taken much of your time to wade through all this stuff, so I'll let you go now. Have a good evening and I'll catch you tomorrow after the market close and after another Christmas party.