#017: MY STUDENT'S STRATEGIES (CASE STUDY #4)
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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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#017: MY STUDENT'S STRATEGIES (CASE STUDY #4)

In the previous parts of this series I have presented to you three really nice strategies. The one I have prepared for you today is another strategy proving that everybody can become a professional trader when he has new, original ideas. The strategy I am about to present to you today is built on gaps, but it is used in a new, not so common way.

 

The strategy was developed by Petr Z., it is called Gapper and trades both long and short:

 

  • Market:                                            E-mini S&P 500 (ES)

  • Main time frame (data1):             15-minute

  • Secondary time frame (data2):   daily

  • Time template:                              08:30-15:15 exchange time

  • Exit:                                                 stop-loss or at 15:15 exchange                                                                          time (avg. winning trade +482 USD)

  • Stop-loss:                                        1,000 USD (avg. losing trade -165 USD)

 

This strategy is still a breakout strategy, but it uses slightly different construction than previously presented strategies. It still has just 3 optimizable parameters and is based on a smart, but simple idea how to trade gaps. In a moment you will see that even today, you can build a profitable strategy that is based on gaps. You just need to be innovative and constantly come with new ideas.

 

The equity on the picture below is based, as usual, on Out-Of-Sample intervals, therefore it reflects only the unknown future and gives very realistic equity, not biased by overfitting or over-optimization. And it is continuously rising:

 

 

The numbers are also really nice, and promising future profits:

 

 

When you take a look at those numbers you can notice that the percentage of winning trades is not so high, only 34% - that is only one profitable trade of every three trades. But even with such a low percentage of profitable trades, you can have a profitable system. Only the average profit has to be more than twice as much as an average losing trade. And in this case it is. The system would be still profitable with only 30% of winning trades. Let me prove it to you.

 

Of 10 trades 3 will be profitable with an average profit 481.66 USD per trade. Other 7 will be losing with an average loss of -165.88 USD. After 10 trades the total profit would be 1444.98 USD (3 x 481.66) and the total loss would be -1161.16 (7 x -165.88).

Then, the net profit after 10 trades is 283.82 USD. And that would be with 30% of all trades profitable. This system has 34%.


As you can see on the equity curve and the calculations above, you don’t need to have 60-80% of trades profitable to earn money in the markets. You just need to have the profits high enough to cover all losses and to make a profit. And you need also to have confidence in your system - losing two times in three trades can be emotionally challenging. Yet in the case of this system, the maximum drawdown is still bearable -2,862 USD. So don't give up and start working on your future now. The price is high, but so are the rewards!

 

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

 

Happy trading!

 

Tomas

 

 

Click here to read more success stories.

 

 

 

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