#070: MY STUDENT'S STRATEGIES (CASE STUDY #27)
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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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#070: MY STUDENT'S STRATEGIES (CASE STUDY #27)

Aside from index markets like TF or EMD, another market that is quite popular between my students is the Crude Oil one (CL). It is not for complete beginners; you usually need a bigger trading account than for trading index markets as it tends to be quite volatile from time to time. But overall, to create a robust automated breakout strategy isn’t really difficult. You should just be afraid of experimenting with time templates as they can have a really big impact on the final results. Which is also the case of this strategy.

 

The main timeframe is 15-minute, which is quite standard, but the trick is in the secondary timeframe. The regular trading hours are 9:00am to 2:30pm. But this trader decided to include 60 minutes before the market opens, making it 8:00am to 2:30pm which is a time template that works for other traders as well.

 

Let’s take a look in more detail at the strategy setup:

 

  • Market:                                                 Crude Oil (CL)

  • Main time frame (data1):                 15-minute

  • Secondary time frame (data2):       390-minute (8:00am-2:30pm)

  • Time template:                                   8:00am - 2:30pm

  • Profit factor:                                        1.98

  • Win %:                                                  58.02%

  • Avg.trade:                                             185.87 USD

  • Exit:                                                       stop-loss or at 2:30pm  
                                                                   exchange time (avg. winning                                                                         trade +646.62 USD)

  • Stop-loss:                                             2,000 USD - only protective,                                                                           barely hit(avg. losing trade                                                                             -451.01 USD)

 

The strategy is trading both long and short and in 13 years it has done $114,679 profit, making an average annual profit of over $8,800. Unlike most of the other strategies, these numbers already include commissions.

 

Let’s take a look at the out-of-sample equity:

 

 

There are some flat periods on the equity curve, but overall the equity rises most of the time.The first flat period comes at around trade #200 and for the next approximately 100 trades, the equity is rather flat. And since the strategy makes an average 47 trades per year, it means 2 years. But then, for the next 200 trades (trade #300 to #500), the equity was almost constantly rising. Another flat period is during approximately 60 trades between trade #490 and #550, but this time, the drawdown is much smaller than in the previous case.

 

Let’s take a look at the strategy performance in numbers:

 

 

You can see there is quite a disbalance between the short and the long side - the profit factor for short trades is only 1.25, but for the long trades it is 2.19. Similarly, when it comes to percentages of profitable trades, the short ones do not even have 50% profitability, whereas the long trades are almost 60% profitable. The drawdown is also about $1,000 lower when you trade long side only. But it still makes profit and it can make the equity curve smoother in certain situations.

 

How will the equity change if we use a 30-minute timeframe instead of the original 15-minute?

 

 

It starts with approximately $6,000-$7,000 drawdown, then we can see a flat period around trade #300, but there is a rising tendency and it still creates a new equity high.

 

As it is the same market, it is not such a surprising result. But it is always a nice confirmation that the equity on the 15-minute timeframe is not a result of overoptimization. But what about other markets, from a completely different market group? Let’s take a look at the 15-minute Russell 2000 (TF).

 

 

The result is not exactly tradeable, but the biggest drawdown is still less than $5,000 and what is really important is the rising tendency and that the strategy keeps rising and is making new a new equity high.

 

It is not too difficult to create a strategy for the Crude Oil market. Especially when you are not afraid to experiment with the timeframes. Using 8:00am-2:30pm instead of the regular trading hours of 9:00am-2:30pm can give you a small advantage. For others it works better to just use 8:30am to 2:30pm. It is not written in stone that you should only use regular trading hours. Try to add (or remove) a couple of bars from the standard time template and you will be surprised with the results.

 

Click here to learn more about the workflow I teach and start creating similar systems by yourself today.

 

Happy trading!

 

Tomas

 

Click here to read more success stories.

 

 

 

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