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The system manufacturers that is, the companies that manufacture complex network systems such as routers, switches, multiplexers, and other devices required in a large network were hard hit by the downturn in the telecom industry Because of their relative position in the food chain they sell directly to the service providers they were affected early in the process As soon as end-user and enterprise spending began to decline in 2000, service providers put their capital expenditure plans on indefinite hold Unfortunately, the systems manufacturers had based their manufacturing plans on continued service provider spending; so, when the spending stopped, manufacturers were left with a massive overhang of inventory inventory, by the way, that ages rapidly and quickly becomes unusable Between 1996 and 2000, total hardware spending grew 16 percent per year, from $245 billion in 1996 to $47.



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The code above shows the logic of both the entries and exits. The modeltype parameter controls whether the longs or shorts are tested. Parameters ptlim and mmsfp are for the profit target and stop (respectively). They are fixed at the same optimal values used in the neural network test earlier, Each of the three rules is calculated as a series of TRUE/FALSE values, and if all three rules are TRUE, a rulebased exit signal (exitrig) is generated. In the exit code, if clauses have been added. For example, an exit at the close is generated ifan exit signal is produced by all three rules being TRUE (exitsig = TRUE). The evolution of rules for the long and short sides follow the same steps as in the chapter on genetics, in which similar rules were evolved for use in entries. The same 12 parameter chromosomes, broken into three genes (each specifying a rule), are employed, and there is no change in that logic in the current test, Rules for the short side and for the long side are produced by allowing 2,500 generations to pass (2,500 runs using OptEvolve). The top 10 solutions for the longs and for the shorts are then tested on both the in-sample and out-of-sample data.





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5 billion in 2000 an absolutely unsustainable level, as we now know Between 2000 and 2001, spending fell to its pre-2000 levels, which on the surface appears to be a catastrophic response Combined spending in 2001 fell roughly 14 percent to $401 billion, a significant decline The bubble burst in 2001 and the industry declined into a multiyear nuclear winter from which the industry is just now thawing Expansion and contraction of capital-intensive markets like telecom, however, are normal events What made this particular contraction so painful was the immense overgrowth and overexpectation that took place prior to the collapse As we described earlier, service providers were buying network infrastructure at top dollar because (1) the money was available, (2) the growth was expected to go on forever, and (3) they had no choice they had to keep up with the competitors that were engaged in the same practice.

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The decline of the hardware market was protracted and financially bloody Cisco s market cap declined from $555 billion in March 2000 (at which point it was the most valuable company on the planet) to $74 billion at the end of 2002, with an attendant share price decline from $82 to $950 Similar declines can be charted for any of the major players Lucent, Nortel, Alcatel, Fujitsu, Marconi, none were immune The core transport glut resulted in a precipitous decline in the optical sector as well Consider the fate of JDS Uniphase, a premier manufacturer of optical components, which recorded the single greatest loss at the time in corporate history $51 billion Manufacturers as a whole saw a 26 percent decline in revenues year-over-year, and new orders were down more.

Top 10 Solutions with Baseline Exit Table 15-4 shows the top 10 solutions found for the long side and for the short side. In the table, LINE = the line or generation number; PROB = the probability or statistical significance (the decimal point is omitted but implied in the formatting of these numbers); $TRD = the average dollars-per-trade; TRDS = the total number of trades taken; PFAC = the profit factor; and AROA = the annualized return-on-account. The best solution for the longs was discovered in the 845 generation of the evolutionary process. For the short side, it was in the 1,253 generation. ln contrast to the situation when rules were evolved for use in an entry model, none of the solutions were profitable. However, Table 15-5 shows that when genetically evolved rule-based exits were added, substantial improvement over the baseline was achieved. The rules in Table 15.4 were translated into plain language. The rules for exiting a long position were as follows: If the close on the current bar is greater

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