MY STUDENT'S STRATEGIES #26
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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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#068: MY STUDENT'S STRATEGIES (CASE STUDY #26)

As you already know from previous articles, in most cases it is easier to create a long-biased strategy. But to have a balanced portfolio, you should have roughly an equal number of long-biased and short-biased strategies. And today I would like to present you with such a strategy.

 

It has been created for the Soybean market and originally it was for trading both long and short. But the long side had a profit factor that was too low, so the creator decided to trade on the short side only.

 

And the short side is really looking good - the profit factor is 1.98, the net profit is almost $34,000 in 7 years; that is over $4,800 per year on average, the maximum drawdown is $3,737, and annual net profit to drawdown is 1.3.

 

Here are more details:

  • Market:                                             Soybeans (S)

  • Main time frame (data1):             15-minute

  • Secondary time frame (data2):   Daily

  • Time template:                               8.30 - 13.15

  • Profit factor:                                    1.98

  • Win %:                                              59.36%

  • Avg.trade:                                         119.48 USD

  • Exit:                                                   stop-loss or at 13:15 exchange                                                                       time (avg. winning trade +406.10                                                                  USD)

  • Stop-loss:                                         2,000 USD - only protective,                                                                           barely hit(avg. losing trade                                                                            -318.63 USD)

 

Based on the numbers, it looks like a nice strategy - a profit factor of almost 2.0, 6 out of 10 trades are profitable, average trade of almost $120, drawdown below $4,000. Does the equity of this system also look as good as the numbers? Let’s take a look:

 

 

You can see that the equity rises pretty steadily, there aren’t any sudden profits or losses, the profits are distributed throughout the time and when it got into the drawdown, it managed to recover pretty quickly.

 

The arrow that marks “LIVE” is when the developer started trading this system live. According to Murphy’s law, every time you start trading live in any system, it starts with a loss. And this case isn’t an exception. The developer started live trading on a high equity at about trade #242 and had to wait until about trade #268 to finally see profits. Since the system makes about 40 trades per year, it means that it was about 9 months waiting for the system to get profitable. But it was worth it.

 

Let’s take a look at more numbers:

 

 

Short-biased systems usually have a lower number of trades. And so does this one. 283 trades in 7 years is about 40 per year. And it is an absolute minimum I want to see when developing a system.

 

How does this system perform in other markets? Let’s take a look at the 15-minute Corn.

 

 

The first half of the equity curve is profitable, the rest is mostly losing, but after the $4,000 drawdown at trade #200, it has a rising tendency again. So it is not so bad for a different market.

 

Now, how about another market from grains - the 15-minute Wheat.

 

 

We can see similar results - profitability in the first half and a rather flat second half. It is far from a tradeable strategy, but this is still an acceptable result.

 

As you can see, it is also possible to create a nice, short-biased strategy. It is not as easy as long-biased, but it can be done. And it doesn’t need to be complicated. All you need is 5 lines of code.

 

Click here to learn more about the workflow I teach and start creating similar systems on your own today.

 

Happy trading!

 

Tomas

 

Click here to read more success stories.

 

 

 

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