LeBEAU
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Little Dipper Bond Trading System
by Charles LeBeau and Terence Tan

$2,743 AVG. WINNING TRADE - 85% WINNERS - LONG

Trade By Trade Report

Background: This extremely accurate system was designed as a short term system to specifically complement the "25 x 25" and the "Big Dipper" bond systems. We believe the combination of a long term system with a short term system such as the "Little Dipper" will provide a valuable diversification of strategies. Many traders overlook the fact that diversification of systems can be nearly as valuable as diversification of markets. The diversification provided by combining long and short term strategies should produce a smoother and more profitable equity curve over the long run. However, traders who prefer shorter term systems may wish to trade the "Little Dipper" without the benefit of the longer term systems. The concept behind the "Little Dipper" is very similar to the "Big Dipper" in that the system seeks to identify a relatively strong uptrend in the bond market and then looks for short term weakness to set up very reliable entries. To reduce correlation between the systems we were careful to use entirely different trend and "dip" indicators in the "Little Dipper".

Strengths of the system: The use of short term exit strategies enables the system to capture significant profits over a brief period of time. The average winning trade lasts only four days, yet produces an average gain of $776 making the average gain per market day more than $190, a respectable daily return. Perhaps most remarkable is that the test data shows the system to be 85% accurate over the last ten years. We were encouraged by these high numbers because, in our testing experience, winning percentages like this are usually obtained only by systems that scalp the markets for minuscule profits. Also, thanks to the extremely high accuracy of this system, the maximum number of consecutive losses was only two.

Weaknesses of the system: Like our other bond systems mentioned here, the "Little Dipper" is a long only system that should generate very few trades in a downtrending market. The system was designed to diversify and enhance the returns of the longer term systems and produces only modest annual profits if used alone. Due to its shorter term orientation, the "Little Dipper" trades more frequently than our longer term trend following systems and has generated 66 trades in approximately ten years.

Summary: Short term traders should find the "Little Dipper" to be a highly accurate and valuable addition to their portfolio of trading systems. We believe the trading strategies disclosed in the "Little Dipper" will have application in other markets as well as bonds. Longer term traders will appreciate the diversification and additional profit potential offered by a system that was designed to run concurrently with our “25/25” bond system and the “Big Dipper” bond system.  (Note that in our testing period over the last ten years of data the combination of the three bond systems produced nearly $160,000 of profits with a drawdown of $6,044. The profit factor of the three systems combined is 7.65 and the average trade is $1,175. During this test period the combined systems traded 136 times with 84% winners.)

System Historical Results (TradeStation format):