#017: MY STUDENT'S STRATEGIES (CASE STUDY #4)
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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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What others are saying

"Tomas is one of the most creative traders I know. He is able to generate unique trading ideas and elegant solutions to system development challenges."

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Andrew Swanscott, BetterSystemTrader.com

"Tomas has been a professional trader for more than a decade and I have had the privilege of monitoring his accounts in action since 2006. His systems are performing as some of the best I have ever monitored and executed. I have been in the trading industry since 2002 and worked with many developers from all over the world. Tomas is definitely the one to consider."

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Martin Lembak,

Systems Trading Expert,

MFRM, CAIA 

"Tomas is a professional trader, who for the last 10 years has specialized in developing trading systems. We have been tracking his trading systems for about 5 years and they generally show very robust, stable and above average performance. Striker is pleased to work with someone like him - a real professional with enthusiasm and deep knowledge of trading."

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William Galwas, President Of Striker Securities, Inc 

"Personal consultation with Tom helped me to re-evaluate the complexity of my robustness testing and optimization processes. Plus, it has helped me with a specific plan on how to take things forward. It has given me some great ideas on how to avoid overfitting and make my testing more robust and provided tips on low hanging fruit in terms of the best markets to trade for intraday/short-term breakouts."

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Craig Peters,

semi-advanced trader,

United Kingdom 

"Tom's approach to Automated Trading Strategies design, tests of robustness and portfolio diversification is really unique. He has been a professional trader for many years and the depth of his understanding of Breakout strategies and Market Internals is hard to find elsewhere."

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Antonin Fisher,

Hedge Fund Manager,

Czech Republic 

"Tom´s systems and trading approach do really work and can bring good, stable and reasonable returns. I can highly recommend him as a teacher."

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David Hruby,

Trader, Czech Republic 

Author: Tom Nesnidal (more about me) 
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