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No technique, except restricting the model to the currencies, improved results enough to overcome transaction costs in the out-of-sample period. Of course, many techniques and combinations were not tested (e.g., the long-only restriction was tested only with the volatility breakout and not with the HHLL breakout, a better out-of-sample performer), although they might have been effective. In both samples, all models evidenced deterioration over time that cannot be attributed to overoptimization. Breakout models of the kind studied here no longer work, even though they once may have. This accords with the belief that there are fewer and fewer good trends to ride. Traders complain the markets are getting noisier and more countertrending, making it harder to succeed with trend-following methods. No wonder the countertrend limit entry works best! Overall, simple breakout models follow the aforementioned pattern and do not work very well in today s efficient markets. However, with the right combination of model, entry order, and markets, breakouts can yield at least moderate profits. There are many variations on breakout models, many trend filters beyond the ADX, and many additional ways to improve trend-following systems that have not been examined. Hopefully, however, we have provided you with a good overview of popular breakout techniques and a solid foundation on which to begin your own investigations.



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Downloaded from Digital Engineering Library @ McGraw-Hill (www.digitalengineeringlibrary.com) Copyright 2004 The McGraw-Hill Companies. All rights reserved. Any use is subject to the Terms of Use as given at the website.

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If possible, use a limit order to enter the market. The markets are noisy and usually give the patient trader an opportunity to enter at a better price; this is the single most important thing one can do to improve a system s profitability. Controlling transaction costs with limit orders can make a huge difference in the performance of a breakout model. Even an unsophisticated limit entry, such as the one used in the tests, can greatly improve trading results. A more sophisticated limit entry strategy could undoubtedly provide some very substantial benefits to this kind of trading system. . Focus on support and resistance, fundamental verities of technical analysis that are unlikely to be traded away. The highest-high/lowestlow breakout held up better in the tests than other models, even though

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content of the next frame in the series, thus reducing the amount of information required. These predicted frames experience medium to significant compression. Finally, MPEG may create bidirectional interpolated frames that are interspersed between the original I-Frames and the predicted frames. They require input from both, and because they constitute the bulk of the transmitted frame stream, are subject to the most compression. In fact, compression ratios of 200:1 are not uncommon in MPEG. An 18 Gigabyte movie can be reduced to a somewhat more manageable 90 MB. There are other compression schemes for video. Motion JPEG, for example, is an intraframe compression technique (unlike MPEG, which is interframe) that compresses and stores each and every image as a separate entity. This is different from MPEG. Compression ratios with motion JPEG are considerably lower than MPEG s 200:1 numbers; ratios of 20:1 are about the limit, assuming equivalent image quality. Other techniques exist, but they are largely proprietary. These include PLV, Indeo, RTV, Compact Video, AVC, DV, DVCAM, and a few others.

it did not always produce the greatest returns. Stay away from popular volatility breakouts unless they implement some special twist that enables them to hold up, despite wide use. . Choose trendy markets to trade when using such trend-following models as breakouts. In the world of commodities, the currencies traditionally are good for trend-following systems. The tests suggest that the oils and Coffee are also amenable to breakout trading. Do not rely on indicators like the ADX for trendiness determination. . Use something better than the standard exit to close open positions. Better exit strategies are available, as will be demonstrated in Part III. A good exit can go a long way toward making a trading system profitable.

It s interesting to note that in the drive toward digitization, the ultimate goal is to create a video storage and transport technology that will yield as good a representation of the original image as analog transmission does. Two primary governing organizations dictate television standards: One is the National Television System Committee, or NTSC (sometimes said to stand for Never Twice the Same Color based on the sloppy color management that characterizes the standard); the other, used primarily in Europe, is the Phased Alternate Line (PAL) system. NTSC is built around a 525-line-per-frame, 30-frame-per-second standard, while PAL uses 625 lines per frame and 25 frames per second. While technically different, both address the same concerns and rely on the same characteristics to guarantee image quality.

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thirteenth step in segment five. The conversion would take on the following representation:

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