STC First Sword Yen System

Background: We have selected the Yen as the primary trading vehicle for our first currency systems because, as we mentioned in the introduction of our previous “7-11” Yen System, we are concerned about the possibility that the pending implementation of a common European currency will greatly reduce the trading opportunities in the European currency markets. In addition the Yen has shown excellent historical trending characteristics for both long and short side trading and it has been a very popular and extremely liquid market for futures traders. We have had some outstanding trades in Yen in the past and it has always been one of our favorite markets. Many of you will recognize "First Sword" as code words from The Art of War. The term refers to the ability to sense an incipient move by an opponent.

Strengths of the system: We have developed a fondness for systems like this one that buy on dips and sell on rallies. They somehow seem much more comfortable to trade than conventional breakout type systems. This system trades about eight times per year and holds winning positions for about a month. It appears to be quite profitable in spite of the lack of frequent activity. Trading one contract from 1/4/88 to 12/17/98 would have resulted in a hypothetical gain of $116,587.00 with a maximum drawdown of $7,962.00. The system is reasonably accurate with 55 percent winning trades (37 winners out of 62 trades), and the winning trades were larger than losing trades by a factor of 2.98. If we combine 55% winning trades with winners that are nearly three times greater than the losers it should be no surprise that the system statistics are excellent. The average trade (win and loss) was $1,371.00, a very respectable number. There were 5 consecutive winners and the maximum consecutive losers in the test period was 4. The largest winning trade was $17,750.00 which accounted for about 15% of the net profit. The drawdown of $7,962.50 helps to create a respectable profit factor (gross profit divided by gross loss) of 3.69.

Weaknesses of the system: The system was designed to be traded in the day session futures market in Chicago. The Yen trades actively in the cash market on a 24 hour basis so much of the important price activity is taking place while the futures markets are closed. Therefore the Yen futures market is often prone to wide opening price gaps and sudden surges in volatility. In our opinion the Yen is a volatile and exciting market that is probably most suitable for experienced traders. Wherever there is great opportunity there is often commensurate risk.

Summary: The First Sword Yen System can be used as a stand alone system or it can be used in conjunction with the “7-11” Yen system as part of a multiple system strategy. The “7-11” System follows strength and buys or sells breakouts in both directions. The First Sword Yen System, was designed to buy only on dips and sell short only on rallies. Like most well designed systems, the results of the First Sword Yen System are highly dependent on using an effective combination of exit strategies.

Performance Summary: 01/01/88 to 12/17/98
Includes $100.00 per trade deducted for slippage and Commissions
Total Net Profit	$116,587.50	Open Position P/L	$0.00
Gross Profit	$159,950.00	Gross Loss	$-43,362.50

Total # of Trades	85	Percent Profitable	55%
# Winning Trades	47	Number Losing Trades	38

Largest Winning Trade	$17,750.00	Largest Losing Trade	$-2,100.00
Average Winning Trade	$3,403.19	Average Losing Trade	$-1,141.12
Ratio avg Win/ avg Loss	2.98	Avg Trade( Win & Loss)	$1,371.62

Max Consec. Winners	5	Max Consec. Losers	4
Avg Bars in Winners	19	Avg # bars in Losers	6

Max Intraday Drawdown	$-7,962.50
Profit Factor	3.69	Max Contracts Held	1
Account Size Required	$7,962.50	Return on Account	1464%

Performance Summary: Long Trades 01/01/88 to 12/17/98
Includes $100.00 per trade deducted for slippage and Commissions
Total Net Profit	$52,012.50	Open Position P/L	$0.00
Gross Profit	$73,512.50	Gross Loss	$-21,500.00

Total # of Trades	36	Percent Profitable	50%
# Winning Trades	18	Number Losing Trades	18

Largest Winning Trade	$11,962.50	Largest Losing Trade	$-1,650.00
Average Winning Trade	$4,0843.03	Average Losing Trade	$-1,194.44
Ratio avg Win/ avg Loss	3.42	Avg Trade( Win & Loss)	$1,444.79

Max Consec. Winners	4	Max Consec. Losers	5
Avg Bars in Winners	17	Avg # bars in Losers	7

Max Intraday Drawdown	$-5,150.00
Profit Factor	3.42	Max Contracts Held	1
Account Size Required	$5,150.00	Return on Account	1010%

Performance Summary: Short Trades 01/01/88 to 12/17/98
Includes $100.00 per trade deducted for slippage and Commissions
Total Net Profit	$64,577.00	Open Position P/L	$0.00
Gross Profit	$86,473.50	Gross Loss	$-21,862.50

Total # of Trades	49	Percent Profitable	59%
# Winning Trades	29	Number Losing Trades	20

Largest Winning Trade	$17,750.00	Largest Losing Trade	$-2,100.00
Average Winning Trade	$2,980.60	Average Losing Trade	$-1,093.13
Ratio avg Win/ avg Loss	2.73	Avg Trade( Win & Loss)	$1,317.86

Max Consec. Winners	5	Max Consec. Losers	2
Avg Bars in Winners	19	Avg # bars in Losers	6

Max Intraday Drawdown	$-5,762.50
Profit Factor	3.95	Max Contracts Held	1
Account Size Required	$5,762.50	Return on Account	1121%

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