MY STUDENT'S STRATEGIES #21
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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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#058: MY STUDENT'S STRATEGIES (CASE STUDY #21)

Do you sometimes struggle with inspiration to get new ideas for your trading systems? Most traders focus on only one trading approach (e.g. breakout strategies) and don’t spend time with others. To get some new ideas on how to diversify your portfolio, you can exchange views (or even whole strategies) with other traders, but you can also use some computer programs to vary how you build your trading strategies.

 

This is exactly what the developer of the following strategy did - he used a program called Adaptrade Builder and created a strategy for the soybeans market. This strategy uses just 2 optimizable parameters, trades 15-minute time frames in both directions - long and short. With a quite acceptable $1,100 stop-loss and $5,300 drawdown, it was able to make over $70,000 profit in little over 10 years. Here are more details:

 

  • Market:                                                 Soybean (S)

  • Main time frame (data1):                 15-minute

  • Secondary time frame (data2):        N/A

  • Time template:                                   9.30-13.15

  • Profit factor:                                        1.69

  • Win %:                                                  53.4%

  • Avg.trade:                                            88.04 USD

  • Exit:                                                      stop-loss or at 13:15 exchange                                                                       time (avg. winning trade                                                                               +404.99 USD)

  • Stop-loss:                                            1,100 USD - only protective,                                                                             barely hit(avg. losing trade                                                                             -320.87 USD)

 

Most of the systems I have presented in this series use two time frames, but as you can see you don’t need to overcomplicate things and even with just one time frame, you can create a nice and profitable system.

 

During the 11-year history, the system went through several winning streaks, but there were also a couple of $2,000 - $3,000 drawdowns. The biggest one was in 2013, which reached $5,300. All losses are limited by $1,100 stop-loss. The recovery from the drawdown didn’t take long, though; just about 20 trades. Since this system makes on average about 75 trades per year, those 20 trades means about 3-4 months. So those are not so bad numbers when you consider that it is a computer-generated system.

 

Let's take a look at the equity curve now:

 

 

There are three moments when the system experienced a slightly bigger drawdown - around trade number 300, 420, and 520 - the biggest one - $5,300. But after each drawdown, there was a fast recovery and a rise of the equity curve. Aside from these moments, there aren’t many flat ones.

 

Some of you might think that since, this is a computer-generated system, the equity curve is the result of overfitting. In most cases, this can be true. But not in this case, as the system passed challenging robustness tests and the equity curve is, as always, composed from out-of-sample periods from the walk forward analysis.

 

Let’s get back to numbers - 811 trades are divided in 453 long and 358 short trades. The profit factors are 1.62 for long and 1.78 for short and the similarities also continue when you take a look at the average net profit: $85 for long and $91 for short and also the percentage of winning trades: 55.19% for long and 51.12% for short.

 

You can find more details on this table:

 

 

The numbers for the soybean market look really good. But how about other markets in the grains category? Can this strategy make some profit in soybean meal? Or corn?

 

Let’s take a look at the 15-minute soybean meal first:

 

 

Even though the system doesn’t look like a system in which you would like to trade, not even $30,000 profit in 11 years, there is a positive tendency, the equity curve keeps rising, and even the drawdowns aren’t that big. I would say this is quite an acceptable result when considering that the system was created for a completely different market.

 

How does this system perform in the corn market?

 

 

We can see similar results. Again, it is not exactly tradeable, but the good news is that the system is still profitable and it keeps creating new equity highs.

 

On this strategy you can see that even computer-generated systems can be robust and profitable and that programs like Adaptrade Builder can work pretty well as an “idea-making-machine”. But you cannot take the system and start trading it live. You need to perform robustness tests first to confirm that the nice equity is not a result of curve fitting.

 

The regular price for this tool, that I’ve been using by myself as an idea-maker, is $1,495, but you, readers of my blog, can get this software with a special $600 discount for just $895 - click on this link and during checkout use the discount code TOMNDSC.

 

You can also 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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Author: Tom Nesnidal (more about me
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"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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"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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