Accuracy vs. Profitability
All trades are functions of two distinct events - the Entry and the Exit. While both parts of a trade are critical to the trade's success, each is an entirely separate problem. You can have the greatest Entry Signals in the world, but if your Exits are not optimal, the Strategy can still lose money.  So Exits are just as important as Entries.  But our first goal was to get the best possible Entry Signals, and we needed a way to measure them.

In our early development of ARM2, we needed a way to isolate Entry Signal accuracy so we could determine whether the raw Signals were improving as our research was conducted.  If we used traditional Exits in our Strategies (e.g., Fixed Loss Stops or Trailing Profit Stops), our statistics would reflect a mixture of Accuracy and Profitability, making it difficult to tell if Strategy X is better than Strategy Y.  Therefore, we separated the concept of "Accuracy" from "Profitability" using the Next Pivot method, described below.

Measuring Accuracy
For all releases of ARM2 and ARM3 Releases prior to 2007, we measured Signal Accuracy using the "Next Pivot" method.  Next Pivot Point Exits allow us to focus on measuring the accuracy of the Signals, without being affected by the shortcomings of a specific Exit method.  In the chart below, you can see signals for TX  from ARM2.  The question is, How accurate are these signals? To assess this, we take each signal and measure the next "Pivot Point" or Key Reversal in the market. If the signal is a Long and the next Pivot is higher, that is a profit. If the signal is Long and the next Pivot is lower, that is counted as a loss. You can see this situation on the Long signal in mid-December on the left, with the word "loss" by the Pivot.

Next Pivot Exits provide a good way to measure Entry Signal Accuracy because all Signals are
evaluated the same way.  Signals in the above chart would be considered 50% Accurate. 

This method of determining raw Signal Accuracy is the best way to measure improvements in performance of the Entry Signals.  Of course, Next Pivot Exits are determined in hindsight, which means they cannot be used in real trading.  In 2006, we graduated to Exits.  With the accuracy of ARM3 consistently crossing the 80% level in 2006, we could start building Strategies with actual Exits that could be used in real trading.

Measuring Profitability
With advancements made to our Nirvana Club Artificial Intelligence technology in 2006, we are no longer using "Accuracy" as a measurement of Strategy Performance.  We are now using REAL Exits and measuring the performance of simulated  Equity Curves.

When Exits are added to a Strategy, "accuracy" or Hit Rate goes down.  Some Strategies that show 75% accuracy using Next Pivot Exits drop to 60% with real exits applied.  But that's OK.  Now that ARM3 has sufficiently high accuracy (exceeding 80% in many cases) and we have Trade Plans in Strategies, we can transition from measuring Strategy improvements to actually trading them.  Several Strategies are available now to Nirvana Club Members that use actual Exits.

The curves below show simulated Equity Curves for the new NSP-31 Strategy and its ARM3 Versions.   The curve was generated using OmniTrader's Portfolio Simulator, which starts with an account balance ($100,000 in this example) and simulates trading the Signals in the Focus List over a period of time.   The simulations is designed to indicate how the strategy might perform taking the Entries and Exits as they are presented on the Vote Line.  The "base" NSP-31 Strategy grew the simulated account from $100,000 to $1.1 Million and the ARM3 NN Stops version grew the $100,000 account to about $3 Million.**

We would rather gauge a Strategy's robustness using Equity Curves as opposed to "Accuracy" because we are interested in making money with it.  This change in focus from Next Pivot Exits to Equity Curves in 2006 was VERY significant.  The focus at Nirvana now is to generate better Equity Curves.   The new ARM3 Strategies are clearly the most powerful and profitable of any we have released since the Nirvana Club began.

** Important Disclaimer:  Even with strong equity curves, past performance is not a guarantee of future results.  Nirvana cannot and does not guarantee profitability in any System or Strategy it provides.  Nirvana is building and testing the technology and providing results to the Nirvana Club membership.  It is each members' responsibility to determine suitability for their own trading.