MY STUDENT'S STRATEGIES #18
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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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#050: MY STUDENT'S STRATEGIES (CASE STUDY #18)

Crude oil is one of the markets which tend to be quite volatile time to time. Therefore, when creating Automated Trading System for this market, it is highly recommended to have a bigger account. But that doesn’t mean you should avoid this market completely - with the right capital, crude oil systems can be really useful for diversification of your portfolio.

 

The author of today’s system has decided to choose an interesting combination of a 15-minute and a 360-minute time frame. And the results look quite promising:

 

  • Market:                                            Crude Oil (CL)

  • Main Time frame:                         15-minute

  • Secondary Time frame:                360-minute

  • Time template:                               8.30-14.30

  • Profit Factor:                                   1.74

  • Win %:                                             59%

  • Avg.Trade:                                       154.75 USD

  • Exit:                                                  stop-loss or at 14:30 exchange time                                                              (avg. winning trade +616.25 USD)

  • Stop-loss:                                        2,000 USD-only protective, barely hit                                                            (avg. losing trade -518.20 USD)

 

This strategy was developed on data from 2006 to the end of 2015, the rest of the data was left as an additional out of sample period.

 

The 2,000 USD stop loss is a little above the average of what we usually have here, but so are the profits. The equity and all the numbers below are based on out of sample periods (2008-1016) and during this 9-year period the system reached 158,000 USD profit. That is over 17,500 USD per year. The worst drawdown in this 9-year period was 7,700 USD, making the annual profit to maximum drawdown ratio 2.28.

 

 

For such a volatile market as crude oil is the equity curve above pretty flat and almost constantly rising, without minor drawdowns or too long flat periods. The maximum drawdown you can see at about trade #150, it was a short period and the system recovered from the drawdown pretty quickly. Also, note the last part - the last about 100 trades are additional out of sample period - the data never used during the development. As you can see, the equity curve is constantly rising and making new equity highs.

 

 

As you already know, the total net profit is 158,000 USD, the total number of trades is 1,021 and the average trade is almost 155 USD. Out of these 1,021 trades, 602 of them were profitable (59%).

 

So far the numbers look quite promising. But how robust is this strategy? How well did the system perform in other markets?

 

When looking at related market, e-mini crude oil (QM), 15-minute time frame, we can see that the equity is almost identical, which is not a big surprise. There are the same number of trades, drawdown at about trade #150, flat period between trades #300 and #400, etc.

 

But how about natural gas, also 15-minute?

 

 

 

As you can see, that is far from a tradeable strategy. But at least, it is still profitable.

 

Now let’s take a look at heating oil (HO):

 

 

This is much better than natural gas, equity still rising, drawdown at about 10,000 USD, with a little additional work, this could be also part of the portfolio.

 

The above-mentioned charts and numbers look really promising and this strategy shows that when you have enough capital, you can create nice strategies for crude oil market. The drawdowns are usually a bit higher, but so are the rewards, so don’t be afraid of that.

 

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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