#048: MY STUDENT'S STRATEGIES (CASE STUDY #17)
As the first strategy of 2017 I would like to present to you a strategy for a market, that we’ve had only once, almost a year ago - e-mini S&P 500 index. It can be pretty challenging to find a functional and robust system due to low average trade value. But if you manage to build a system for this market, you can expect a smaller stop loss and a nice drawdown (like this one - less than 2,000 USD). Therefore it is suitable for smaller markets.
The system is build on average true range, has symmetrical conditions for short and long side, and it has, unlike most of other strategies we have here, included slippage (1 tick; 12,5 USD) and commissions (5 USD) per trade. That is additional 17.5 USD that aren’t usually included. This approach is based on preferences of every trader, some traders include it, others don’t.
But let’s take a look at the system:
Market: e-mini S&P 500 (ES)
Main Time frame: 30-minute
Secondary Time frame: Daily
Time template: 8:30 - 15:15
Profit Factor: 2.09
Win %: 57.6%
Avg.Trade: 103.40 USD
Exit: stop-loss or at 15:15 exchange time (avg. winning trade +343.60 USD)
Stop-loss: 800 USD-only protective, barely hit (avg. losing trade -223.84 USD)
The data history used for the development of this system comes from 2005 to 2014, the rest of the data (from 2015 onwards) has the developer used as an extra out of sample (Extra OOS in the chart below).
The profit is really nice for an ES market, almost 34,000 USD for little over 10 years, and with close to close drawdown less than 2,000 USD it gives us annual net profit to drawdown ratio approximately 1.55:1.
The equity below is not a straight line, but don't forget that in absolute numbers it is not as bad as it looks - the worst drawdown is just 1,980 USD. And this is an equity curve composed of out of sample intervals, it has slippage and commissions included, so this is as close to the real trading as it can get.
The number of trades is quite low for intraday strategy, there are just 326 trades in little over 11 years, that is almost 1 trade every 2 weeks, but the rest of the numbers is really nice - profit factor 2.09, average trade value 103 USD and almost 60% of all trades profitable:
As you already know from previous articles, I recommend to test all strategies also in other markets and timeframes. Is this strategy robust enough to pass this test? Let’s take a look at e-mini S&P MidCap 400 index, 30-minute time frame.
During the 2004-2014 period it was profitable overall and despite the flat part at the end, it looks pretty good. But the number of trades (240) is quite low for live trading.
How about e-mini dow ($5) index (YM), 30-minute time frame?
Again, there is a rising tendency, even no big drawdowns, so it is a sign that this strategy is robust.
As you can see, the strategy and the numbers look really nice, especially when the commission and presumed 1-tick slippage is included - that is extra 17.5 USD deducted from each trade / over 5,700 USD for 326 trades. The profitable extra out-of-sample period and the fact that the strategy works in other markets as well is really promising for the future.
To the author, I wish more strategies like this, and a lot of good trades (not only with this strategy).
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