Vertical Solutions

Trading Strategies

The Qualitative Value of a Pattern, Part II, 02/26/08

A qualitative value of a pattern implies two questions:

When does the qualitative value change, and

How does the qualitative value change?

Each question then implies two more quesitions:

What are the implications for the tactics of the system, i.e., how the system trades, and

What are the implications for the strategy of the system, i.e., when and if the system trades

Part 1 is here.

Henry Carstens
Vertical Solutions
carstens@verticalsolutions.com

THERE IS A RISK OF LOSS IN FUTURES TRADING. ADDITIONALLY, HYPOTHETICAL S&P PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY TRADING ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN; IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR EQUITY TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK OF ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO FORECAST AND WITHSTAND FINANCIAL LOSSES OR TO ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC AUTOMATED TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED QUANTITATIVELY FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL WHICH CAN ADVERSELY AFFECT TRADING RESULTS.

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