JayTrader Two is easy to trade, sticks to liquid stocks, takes both long and short positions, and uses almost no leverage. Both entry and exit orders can be placed in the evening. Profit targets and stop losses are used. See the system forum for lots of good information.

Table of Contents
1. System Overview
2. How to Trade
3. FAQ
4. Backtest Methodology & Results

Disclaimer: Past performance is no guarantee of future success. Every investor and trader is responsible to make their own trading decisions.

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== 1. System Overview
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JayTrader Two has the following system attributes:

-- Trades equities only, with no ETFs

-- EOD data used to derive signals

-- Fully mechanical (i.e. no discretionary choices) entry signals generated using proprietary system, with set exit criteria for each trade

-- takes both long and short positions

-- each position has bracket orders associated with it, a profit target and stop loss

-- holds each trade 3 full days (unless a stop loss or profit target is triggered)

-- entries and exits happen at market open (aside from a stop loss or profit target triggering the exit)

-- all orders can be entered in the evening

-- up to 4 positions at a time, with a maximum of 3 shorts held simultaneously (up to 4 longs can be held at the same time)

-- short positions are allocated 17.5% of equity

-- long positions are allocated 27.5% of equity

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== 2. How to Trade
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Auto-trading is supported. However, if you want to manually trade the the system, keep reading. I manually trade it in my own account.

Here's how I trade this system using Interactive Brokers. I have set up short-cut keys to speed up the process. All told, it takes about 5 minutes a day to trade when there is activity.

1) An entry signal is received by email from Collective2 in the evening. The entry order is entered as a market order for regular market hours (that is, it will execute the next trading day at the open). A bracket order (stop loss and profit target) is attached to the main entry order using a relative offset. The actual price of the brackets won't be known until the position is entered. I therefore enter the order on Interactive Brokers with a bracket 20% above and below that day's close as a placeholder.

2) Just after the market opens, Collective2 sends an email with the bracket prices. I update my bracket orders with Interactive Brokers to reflect the actual profit target and stop loss as soon as possible.

3) Within the next two days, Collective2 sends out a "park until" exit order for the position that is merged into the bracket OCA group. In other words, if one of the bracket orders doesn't execute in 3 days, the position exits. I match that "park until" order with in Interactive Brokers.

Alternatively, in the evening, when the "park until" order becomes effective, you could enter an exit order in Interactive Brokers and cancel the bracket orders.

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== 3. FAQ
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Question: Does this system magically make money every single day with no drawdowns?

No. As in absolutely not. This system is designed with the goal to provide a statistically significant edge that will generate profits over a significant period of time. That is the goal. However, "significant period of time" is measured mostly in weeks, but sometimes in months. Drawdowns will occur, and they will occur regularly.

Question: Is the system 100% mechanical?

Yes. All entries and exits are tied to predetermined signals and rules. Even the "risk of ruin" stop is predetermined (i.e. how do you know if the system is broken).

Question: How do you handle a complete failure of the system? How do you know it happened?

If the system has a drawdown of 19%, trading will be temporarily halted to assess the situation. Refer to the backtest results in the forums and you will see that a 19% drawdown is approximately 2 standard deviations above the average of max drawdowns against the unique historical simulations.

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== 4. Backtest Methodology & Results
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The backtest results presented in the forums are not meant to determine the future performance of the system. Rather, they reflect the soundness of the system, and the possibility of solid future performance.

I take the following approach with my mechanical trading systems.

1) Only build systems with hundreds or thousands of trades (or more).
2) Minimize the number of discrete variables used to generate signals.
3) Give some account of friction.

Per point 3, I add broker fees and liquidity requirements to my backtesting. I use Interactive Brokers' commission structure as a model, and require every trade be made on stocks that are moving greater than $10M dollars a day of volume.

1 & 2 together help safeguard against curve-fitting historic data. However, even with such an approach, I do not believe the statistics from a single, optimized backtest are sufficient to describe a trading system. I therefore go a step further to define the performance potential of the system.

4) Add a random variable to every signal generated, such that there is a 10% chance that any signal will be ignored and the next, lower-ranked signal is taken instead.

5) Run through the system hundreds of times. The random variable, combined with the hundreds or thousands of potential trades (see point 1), ensures each run generates a unique set of trades.

I then build histograms of the performance of several key variables. This approach yields a much more accurate view of "what could have happened". Of course, past results are no guarantee of future performance.

In the forums, you will find the results listed for several critical variables from my backtesting of JayTrader Two. Over 1000 individual runs were made, each yielding unique results.

The test results are documented in the system's discussion forum so there is a historical record when changes are made to the system.