In this issue:

• New Video:  The VIX is Not So Vexing

• New Video:  Dakota R/T A Sneak Preview: Trading the Russell 2000 e-Mini on 5 Minute Bar History

• Tech Talk:    Repeatability Studies

• Customer Comments

Video: The VIX is Not So Vexing
Some people find near term forecasts of the volatility index (VIX) useful and it is easy to do with either with BioComp Profit or Dakota, as you are about to see with Dakota.  In this video we show Dakota stepping through the VIX bar by bar pretending it is a tradable security, giving us an indication of where the VIX is headed tomorrow.

http://www.biocompsystems.com/products/Dakota/videos/VIX/Vix.htm

Questions or comments?  Email me at cmcook@biocompsystems.com

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Video: Dakota R/T...  A Sneak Preview
Come take a look at a video of Dakota R/T spinning historical Russell 2000 e-mini (ER2) 5-minute bars using a simple counter-trading moving average crossover system.  A moving average system couldn't be worth much, really, um, right?  Go see.  You be the judge.

http://www.biocompsystems.com/products/Dakota/videos/RTPreBeta/RTPreBeta.htm

Note: Want Dakota R/T?  Do this: Order Dakota End-of-Day and learn the Dakota concepts while you are waiting.  When Dakota R/T is released we'll fully apply your investment towards Dakota R/T and you'll be ready to roll....

Not convinced?  Ok, we'll give any end-of-day Dakota user a discount when rolling over to Dakota R/T.  There.  Now its cheaper to get end-of-day Dakota first!

Step up and Order Here:
http://www.biocompsystems.com/store/financial/index.htm

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Tech Talk:   Repeatability Studies
Let's say you have a trading system that looks to be a real winner on historical data.  But is it?  It could be chance that you got great results.  Or worse, it might be an accident waiting to happen, biting you when you put real money on the table.  Maybe the monkeys and typewriters actually did just produce "War and Peace".

Dakota tackles this problem by injecting noise into the walk forward adaptation process so we get a bit different results each time we run a swarm.  While you can avoid this injection, it is a feature that enables you to look at the results of multiple "runs" and see the average performance and how much it varies.  To get a good statistical measure of performance, you should repeatedly run the system 30 times.   To do this manually would be tedious, to say the least.  So we automated it.  By dropping down the "Run" [>] button and selecting "Run N Times...", Dakota will rerun the swarm the number of times you specify.  While it is doing that, it captures the statistics and equity curves from each run and exports them to disk to a file you specify.  You can open the statistics file in Microsoft Excel or other spreadsheet program and do some analysis, such as computing the mean and standard deviation of equity performance, drawdowns, drawdown durations, equity curve straightness, and any of 34 additional trading metrics.

You can also do all sorts of mathematical analysis of the equity curves.  At a first glance, I personally like to plot them like this:

Example SP500 emini system equity curves viewed in Excel

Looking at this chart tells me a lot.  First, the average performance is about 1,000 points profit for this trading system.  This system uses 6 years of data, so that is about 167 points per year profit.  Second, high performers stay high and low performers stay low, that is, they don't "revert to the mean", criss-crossing each other from high to low.  That means just because my system has a high equity curve does not mean it's going to "tank" on me.  Third, even the lower equity curves made good equity gains during the last 4-5 years.  Fourth, I can see that most of the "decision-making" about what run had a high equity curve had occurred early in starting the swarm, which doesn't have much effect on recent performance and finally... Fifth, that once a swarm had established itself, it principally kept on the same slope as all the others, fairly parallel in their equity climb.  It doesn't much matter which I choose to actually trade.  I will make money with each or any.

By using repeatability studies in Dakota, you can sort out the luck from lucre.

Note: The equity curve logging is in the next update of Dakota, coming in a day or two.

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Customer Comments
We like talking with our customers on the phone, or corresponding by email.  I'd like to share a few comments I've gotten in recent days...

• June 6th:  B.V. Says: "I don't hardly look much at [other trading tool name here].  I can trade more realistically with Dakota"
   
• June 6th:  T.R. Says: "I definitely feel better looking at a steadily rising six-year-long straight line of equity (few wiggles)."
   
• June 5th:  T.B. Says: regarding a user's post in the forums about how he trades using Dakota, "The Dakota community is very fortunate to have people like him that are willing to contribute personal 'trade secrets'."
   
• June 2nd: M.K. Says: regarding this newsletter, "I wanted to thank you for your very helpful newsletters. I find them very interesting and encouraging and this last one is a good example where you updated the profits of the trading systems since making the original videos. Although for some of the markets traded we've had both some up and some down since you made the videos, for several they've been swimming against a very negative market the past few weeks and that makes the results even more impressive. I like the "short and to the point" writing style. They impart the important information while keeping the length reasonable. Thanks!
   
• May 27th: E.W. Says: regarding numerous trading software products he's tried..."The best all round is Dakota."

Thanks guys!

Closure
If you find this newsletter interesting, please stay subscribed.  If you think others might like getting it, forward this email to them or post a link to our website in your favorite trading discussion group.  That helps us grow.  We'd appreciate it.  If you have suggestions, please email me at cmcook@biocompsystems.com.

These documents are provided for informational purposes only. The information contained in this document represents the current view of BioComp Systems on the material discussed as of the date of publication.  Materials written should not be interpreted to be a commitment on the part of BioComp and BioComp cannot guarantee the accuracy of any information presented after the date of publication.   INFORMATION PROVIDED IN THIS DOCUMENT IS PROVIDED "AS IS" WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND FREEDOM FROM INFRINGEMENT. Statements of equity performance are hypothetical and have not been substantiated by records of actual trading.  Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading.  Also, since the trades have not actually been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity.  Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profits or losses similar to those mentioned.

The user assumes the entire risk as to the accuracy and the use of this document. This document may be copied and distributed subject to the following conditions: 1) The entire document must be copied without modification; 2) All copies must contain BioComp's copyright notice and any other notices provided therein; and 3) This document may not be distributed for profit.  All trademarks acknowledged.  (C) Copyright BioComp Systems, Inc. 2006.