#060: MY STUDENT'S STRATEGIES (CASE STUDY #22)
As you already know, the part of the robustness testing process is a verification of how well the system performs on other markets. Sometimes it can happen that the strategy outperforms the original one, the one it was created for, when it’s tested in a related market. In this situation you can still take the system and complete the development on the other market (as long as it passes all robustness testing).
This is exactly the case of today’s strategy - the system was originally developed for 10-year T-Note market (TY), but during the testing phase, it showed a better performance on 30-year T-Note (US).
Strategies on these markets usually require a bigger account - and this isn’t an exemption. The stop loss is set to $1,700 and the maximum intraday drawdown (not close to close) is $15,531. Which is quite a lot compared to other systems, but this system is making about $18,000 per year (to be exact, it is $172,437 in 9.5 years).
Let’s take a look at more numbers:
Market: 30-year T-Note (US)
Main time frame (data1): 15-minute
Secondary time frame (data2): 400-minute
Time template: 7.20-14.00
Profit factor: 1.37
Win %: 54.1%
Avg.trade: 102.82 USD
Exit: stop-loss or at 14:00 exchange time (avg. winning trade +705.45 USD)
Stop-loss: 1,700 USD - only protective, barely hit(avg. losing trade -607.02 USD)
The 400-minute timeframe can look exotic, but it is basically daily data for this time template - as it is 6 hours and 40 minutes.
A characteristic that is also worth mentioning is the number of trades - the system has done 1,677 trades (both long & short) in less than 10 years. The number of trades is increased through a special trick - to increase the number of contracts depending on the market situation of the previous day - depending if the market went up or down, the system trades 1 or 2 contracts. Even this simple trick can make the equity smoother.
How smooth is the final equity? Let’s take a look now:
Besides 2-3 weak spots, the equity curve is mostly rising. At about trade number 1100 we can see the biggest drawdown. The system was mostly losing money for over 100 trades. For most traders, this could be unbearable and they would switch the system off. And that would be a mistake - as you can see, the system recovered from the loss pretty quickly and started making new equity highs.
How does this curve look in numbers?
In the beginning, I mentioned that this system was created for 10-year T-Note market (TY), how does it perform there?
The performance isn’t that bad, either. The net profit is about $65,000 and the drawdown will be probably at about a $7,000-$8,000 level, making the net profit-to-drawdown ratio slightly worse than in the case of the US market.
Let’s leave interest rates markets for a while and try completely different ones - the stock indexes? The first one is E-mini Dow Jones (YM):
The equity isn’t perfect, especially when you take a look at the $10,000 loss in the beginning, but it still was able to recover from it and make a nice $60,000 profit - so important is the rising tendency.
How about S&P 500 (ES)?
Despite the fact that it is a different market, we can see a similar equity curve - a quick loss in the beginning, slow, steady rise, every once in awhile a new equity high, and then a nice profit in the last 100 trades.
You don’t want to trade equity like this one, but don’t forget those are parameters that were created for a completely different market and, with a little bit of work, you can turn this equity into a tradeable one.
For those of you who are still thinking how to code the condition I described in the beginning of the article (change number of contracts depending on the market situation of the previous day) and how to add it your own strategies, here is the EasyLanguage code:
if CloseD(1) < OpenD(1) then ContractsLong = 2 else ContractsLong = 1;
if CloseD(1) > OpenD(1) then ContractsShort = 2 else ContractsShort = 1;
As you can see, it’s nothing complicated. Just 2 lines of extra code that can improve the performance of your trading strategies. And don’t be afraid to experiment with this condition and come up with your own versions on when to change the number of contracts.
But don’t forget that you also need to use the same variables ContractsLong and ContractsShort for your buy/sell orders.
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