#084: MY STUDENT'S STRATEGIES (CASE STUDY #34)
Most of the strategies in this series are for E-mini markets, as it is easiest to find a robust strategy on these markets. Energies can be also interesting for breakout strategies, but even for softs, like coffee, you can also find some interesting breakout strategies for your portfolio.
What might help you to find the strategies faster is to change your approach and look for swing strategies instead of intraday ones. Just replace the “end of day” exit with another one, like an ATR-based exit and see if that brings you better results.
Most traders avoid swing strategies because they are afraid of drawdowns. And sometimes they are bigger in swing strategies, but that’s not always the case. Like with this swing strategy for the coffee market that has a close to close drawdown of just $3,431, which is less than some of the intraday strategies for e-mini markets.
Let’s take a look at the setup:
Market: Coffee (KC)
Main time frame (data1): 30-minute
Secondary time frame (data2): 180-minute
Time template: 8:00am - 2:00pm
Profit factor: 1.80
Win %: 38.45%
Avg.trade: 103.91 USD
Exit: stop-loss or ATR-based Profit Target (avg. winning trade +607.55 USD)
Stop-loss: ATR-based (avg. losing trade -210.72 USD)
What you can notice from the table is the percentage of winning trades. Most strategies have about 60%, but this one has less than 40%; just 38.45% to be exact. That is roughly 4 profitable trades out of 10. What you need in such case is to have an avg. profitable trade that is big enough to cover all losses, plus generate some profit, which, in this case, it is. The avg. profitable trade is $607,55 and the avg. losing trade is $210.72. The ratio is 2.88, which is more than enough to cover the losses.
How do these statistics work in the long term? In 10 years, the strategy has generated $77,831 in profit. As you already know, the drawdown is $3,431, which gives us an annual net profit to drawdown ratio of 2.27. Not so bad when over 60% of trades are losing.
Let’s check if the equity curve looks as good as the numbers:
The equity curve doesn’t look that bad, either. There are some periods with drawdowns, like between trades #190 and #310, but in general we can see a nice and rising equity curve with not too many flat periods. This period can be quite long for some traders, considering the average number of trades 75 per year, that can be 1,5 years, but the strategy still makes new equity highs in this period. And when it starts rising again, it makes over $15,000 profit in 50 trades. Besides this part, the equity curve looks really good. Especially the most recent part, which is also a good sign.
Let’s take a look at the rest of the numbers:
Most of the numbers were already mentioned - the strategy has done, in 10 years, a $77,831 profit in 749 trades, 38.45% trades were profitable, maximum close to close drawdown is $3,431.25.
Usually in this part we also check the performance on other markets. In the case of coffee, there aren’t any similar markets we can test it on, but we can always try with other timeframes. When you change the primary timeframe to 5-, 15-, or 60-minute, it is still profitable. And when you change the 2nd timeframe from 180-minute to daily, it works even better; the profit factor goes to 1.85. So this is also good indication of how the system might perform in the future.
As you can see, you don’t need to avoid the coffee market, it is possible to find a nice strategy for this market as well. And if you don’t have much luck with traditional, end-of-day approach, just change and try swing strategies instead. You’ll see that not all of them have big drawdowns.
You can learn how to build similar strategies here.
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