System design, discretion and a load of fertiliser

When I designed one of the systems that I trade today back in 2002 / 2003 I used data from 1996 to 2002 when backtesting. One aspect of the system includes a profit exit - an exit that is triggers when the price moves up very fast. Incitec (IPL) did this not long after I bought it and the exit was triggered as shown by the $30.40 sell signal on the chart below.

When I developed the system I tested with and without the profit exit, and the equity curve was a little smoother with the exit than without, but there wasn't a lot in it.

The exit rarely triggers so I have been using some discretion. I didn't take the exit signal on IPL above. In this example it paid off. It is possible that this aspect of the system could be dropped altogether, but I will leave it in for the moment. A bull market is not the best time to take profits. The profit exit might be more useful in a less bullish envirnment - like 2000 through to 2002.

I bought into IPL at $26 (I must have been busy that week since it opened at $25.75) Now it is the biggest % and dollar winner in my Super fund portfolio - up 103%. The trailing exit is still valid. It does surprise me that a fertiliser company can perform so well! Who buys fertiliser in a drought? I guess I should stick to trading my systems and leave the fundamentals to those that understand them.

I have another profit exit signal for this weekend. I don't know how discretionary traders cope with all the decisions that would have to make.

Stevo