#062: MY STUDENT'S STRATEGIES (CASE STUDY #23)
A lot of beginning traders ask me what the best market to start with is. What I always recommend them is to start with index markets. In most cases, it is easier to find a profitable strategy on index markets like Russell 2000 (TF) or E-mini S&P MidCap 400 (EMD), that have a low drawdown under $5,000, an acceptable stop-loss, a profit factor over 2 and average trade over $100. And this is exactly the case of today’s strategy.
It has been created for E-mini S&P MidCap 400, the total number of trades is 910 in a little over 15 years with an overall profit of $93,660. That is giving an annual profit of almost $6,000. And with a close-to-close drawdown of just $2,890, the annual profit-to-drawdown ratio is more than 2.What timeframes does it trade in? Let’s take a look:
Market: E-mini S&P MidCap 400(EMD)
Main time frame (data1): 15-minute
Secondary time frame (data2): Daily
Time template: regular session
Profit factor: 2.01
Win %: 59.89%
Avg.trade: 102.92 USD
Exit: stop-loss or at 15:15 exchange time (avg. winning trade +342.77 USD)
Stop-loss: 750 USD - only protective, barely hit(avg. losing trade -263.14 USD)
This system is making, on average, about 60 trades each year. And all of them are long. In general, it is easier to find a system that is long-biased. Sometimes, they can be a bit less robust, than systems trading both long and short, but of course the overall robustness of the system depends on robustness tests, like performance in other markets.
But before we move to other markets, let’s take a look at the equity curve on EMD:
There are a couple of drawdowns, but mostly steadily rising (sometimes it is really steep), and overall it looks like a really nice strategy. The first drawdown we can see is in about trade #450 and the second bigger drawdown is at about #800. In both cases, it took about a year to make the new equity high. Besides these two, there are a couple of flat periods, but overall, the system has recovered from all drawdowns pretty fast.
More details about this system are in this table:
As you can see, it’s a really nice system when you want to start with a smaller trading account.
But what about other markets? Is this market an exception, or does it also perform well in other markets? Let’s take a look at Russell 2000 (TF).
The equity curve is a bit less smooth, but it has pretty much the same shape. There are also some drawdowns, the biggest one is at about $5,000, which is still acceptable for TF market. The profit is also similar (almost $90,000) and overall this equity curve is really a good sign.
How about one more index market, the E-Mini S&P (ES)?
Here we can see a slower start, the equity is even less smooth than the equity for TF market, but it is still rising and it has done over $40,000 of profit, with the biggest drawdown just at about $3,000-$4,000 which is still good - don’t forget that the strategy was created for a different market.
Overall it looks like a robust strategy, with a nice number of trades in all three cases. 60 trades per year on average is really nice and there is still space to apply another filter to reduce the losing trades and improve the overall performance.
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