#046: MY STUDENT'S STRATEGIES (CASE STUDY #16)
For the end of the year, I have a student’s strategy for a market that we don’t have here very often - natural gas market (NG). The reason why most of the traders avoid this market is usually higher drawdown that you can experience in this market (as I have mentioned in this article). This system is an exception, the drawdown is similar to other strategies for index markets (TF, EMD, etc.). Also, what is a little bit special about this system is its almost perfect symmetry for long and short side. But let’s take a look at the basic information about the system first:
Market: Natural Gas (NG)
Time frame: 15-minute
Time template: 8:30 - 14:30
Exit: stop-loss or at 14:30 exchange time (avg. winning trade +532 USD)
Stop-loss: 1500 USD-only protective, barely hit (avg. losing trade -463 USD)
This system was created using data from 2008 to the middle of 2016 and during this period it has earned over 90,000 USD profit. That is more than 10,000 USD per year. And with 5,000 USD drawdown we are getting annual net profit to drawdown ratio 2:1.
On the equity curve below you can see a couple of drawdown periods, but the system needs 50 trades at most to get from the drawdown. It can be almost a year. When something like this happens during the live trading, some traders would consider switching the system off, but as long as the drawdown is within the limits setup by your favourite method (e.g. Monte Carlo analysis), just keep the system running and if the system is really robust, it will bring you some nice profits.
The system has done over 90,000 USD profit in less than 9 years, the profit factor is 1.90 and the percentage of profitable trades is over 62%. Really nice numbers. But what is really interesting about this system is the symmetry for long and short trades while using the same parameters and entry/exit conditions for both sides. When you take a look at the table below, you can see that the net profit is almost evenly split between the long and the short trades, both sides (long and short) have almost the same profit factor, percentage profitable, average trade, drawdown and other statistics.
This level of symmetry is something you don’t see very often and the fact that the system works on both sides (long & short) with the same parameters, is a good sign.
Another robustness test is testing in other markets. And this system was tested on gold and crude oil and the results weren’t really good.
But there are systems that work just in a single market and still are profitable in long term. So as long as the system doesn’t exceed maximum possible drawdown, enjoy the profits that the system brings you.
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