Clarified Rules
The word "wait until" confuses me a bit. Suppose that today the system is out of the market and AroonOsc is below -50. Which of the following is the proper way to proceed:
1) Since AroonOsc is less than -50, check whether CCI has crossed above -200. If it has, Buy. Otherwise, do nothing. Perform this check (for both the AroonOsc and CCI) every day.
2) Since Aroon Osc has dropped below -50, start waiting for the CCI to cross above -200. That is, once we enter this state, every day, no matter what the value of the AroonOsc is from now on, check the CCI and Buy as soon as it crosses above -200.
I believe your second interpretation is what I had in mind. If the Aroon is below -50, the CCI must cross above -200 AND -100 to generate a buy signal. The rule dictates that the CCI must be below -200 (at some point) when the Aroon is in the -50 state. If a signal isn't triggered, and the Aroon moves above -50, the CCI only needs to cross above -100.
BUY RULES
If the Aroon is below -50, BUY when the CCI crosses above -200 AND -100
If the Aroon is above -50, BUY when the CCI crosses above -100
SELL RULES
If the Aroon is above +50, SELL when the CCI crosses below +200 AND +100
If the Aroon is below +50, SELL when the CCI crosses below +100
Sell long positions on any Sell short rule.
Place stops 5% below any buy.
SHORT RULES (green arrows)
Short if the CCI crosses from above to below +100 as
long as the Aroon Oscillator is below "0".
That's good - but what are the Cover rules? :-) Does the system cover when a Buy signal occurs?
Yes.
If the Aroon is below 0, SHORT when the CCI crosses below -100
Cover shorts on any subsequent buy rule.
Place stops 5% above Short Sales.
This doesn't seem to be the case, according to your chart - the system has stayed Short from September 2000 to September 2001, yet there have been several Buy signals in-between.
Here's my takeaway from the chart: The CCI fell below -200 at the start of October and rose above -200 BEFORE the Aroon Oscillator went south of -50 in late October. (This is damn hard to tell from a 1000 pixel chart, I'm probably wrong). So to my thinking, the CCI would need to dip again below -200 before any cross above -100 would qualify as a buy signal. When the Aroon is at or below -50, it's telling me this is a bad-ass down trend - DON'T BUY unless the CCI tells you the sell-off is out of gas.
Note from late October '00 through early September '01, the Aroon was below -50 but the CCI never fell below -200 (or so it appears). There was a short period between early September '01 and late September'01 when the Aroon peeked up above -50. From late September '01 to early December '01, the Aroon was again below -50, BUT this time, the CCI was clearly below -200. This set up a ballsy buy signal in early October followed by a sell short signal in late December.
The real damage was done from March through May of 2002. I counted 3 disasterous buy signals during that period. Had the Aroon moved below -50 during that period, it would have eliminated two. I shall begin looking for a bear market filter.
Backtesting shows that the system performs quite well in bull markets (backtested since the 80s) - but is disastrous in bear markets. It had series of losing trades since May 2000 and another one in September 1998 - another bad time for the bulls.
I agree. The system would have been whipsawed using 10% stops. Do more agressive stops (5%) make sense? The subsequent buy signals in Oct '98 and May '00 look good.
Humor me Vess, can you run the test one more time using the rules I described above? I'm not practiced in writing scripts.
Thanks for your patience!
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