In this system, we have tested waiting for a pullback after a strong move to limit our risk. The benefit of this algo over the trend-following system is that our win rate increases to nearly 60%; however, it has the drawdown of not getting the amount out of your winners as you do with pure trend following.

Buying pullbacks allows us to increase the size and apply some more discretion as we watch the levels noted as the stocks pull back into them.

EXIT RULES:

• Stop loss provided with each trade.

• No profit targets since we want to give the stock room for upside surprises

• We use a time stop for exit of one week from entry. So the backtest assumes an exit on Monday mornings.

  • The exit is where a traders eye can really boost returns. If you have a good entry on a nice name on a pullback it only makes sense to keep some.