#027: MY STUDENT'S STRATEGIES (CASE STUDY #9)
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DISCLAIMER:  Futures trading systems and commodity trading bear a high degree of risk. People can and do lose money.
Hypothetical results have many inherent limitations. Past performance does not guarantee future results. 

 

ACTUAL RESULTS SHOULD BE VIEWED WITH CAUTION, BECAUSE PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

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#027: MY STUDENT'S STRATEGIES (CASE STUDY #9)

 

After previously presented long-biased strategy, this week I have for you a short-biased strategy. It is a strategy for E-mini S&P MidCap 400 (EMD) market, 30-minute time-frame and has, same like the previous system, a drawdown under 3,000 USD which is making it suitable for small trading accounts.

 

This is the basic setup:

 

  • Market:                                             E-mini S&P MidCap 400 (EMD)

  • Main time frame (data1):              30-minute

  • Secondary time frame (data2):     Daily

  • Time template:                                8:30 - 15:15

  • Exit:                                                   stop-loss or at 15:15 exchange time                                                                (avg. winning trade +451 USD)

  • Stop-loss:                                         1,000 USD - only protective, barely hit                                                            (avg. losing trade -307 USD)

 

The equity is almost steadily rising, but there is, again, a period between trade number 120 and 170 when the strategy goes up and down and doesn't make any profit. That means that you will have to wait for more than a year for some profits. Some of the traders would just switch the strategy off, thinking that the strategy doesn't work any more. But the drawdown is nothing exceptional, still under 3,000 USD. So what you should do in this situation is not to switch the system off (the drawdown is still acceptable) and just patiently wait for profits. And as you can see, right after this period there is a 10,000 USD profit in just a couple of trades. Don't be impatient, in trading you won't become a millionaire overnight.

 

Let’s take a look at the equity curve. This equity curve is composed of Out-Of-Sample intervals and therefore can give us realistic expectations how the system will behave when we run it live. But don’t look only at profits, you should be also prepared that the live trading will start with the 2,500 USD drawdown followed by 6 months - 1 year flat period without any new equity highs. But that doesn't mean that the system doesn't work.

 

When looking at the numbers, you can clearly see that there is a potential in this strategy and that it can really bring you some nice profits:

 

 

The profit factor that is 2.29 is really nice value. Combined with above 60% of profitable trades and 154 USD average trade net profit it is making this strategy another nice system for a portfolio under 20,000 USD.

 

The net profit of this system is almost 48,000 USD in the last 12 years. That is 4,000 USD per year on average. And here is the breakdown of the profits year by year. In the last 5 years the system was always profitable. The profits were between 3,000 USD and 7,000 USD.

 

 

 

As a prove that the system (and the numbers above) is not only overfitting, but really a robust system, I recommend every new system to be tested also in other markets. How does this one perform in E-mini S&P 500 (ES) market?

The equity curve has a long flat period between trade number 210 and 300, but overall there aren't many drawdowns and the equity is mostly rising. And the system still made 35,000 USD in the last 12 years without any big drawdowns.

 

 

Trading isn’t about fast profits. The success in trading is built on thousands of small wins and even smaller losses. You have to be patient and wait for the big wins to come. What really helps is to have well diversified, low-correlated portfolio, so that the periods without any big profits are as short as possible and for you not so difficult to get over.

 

You can click here to learn more about the workflow I teach and start creating your own similar systems today.

 

Happy trading!

 

Tomas

 

Click here to read more success stories.

 

 

 

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