#088: MY STUDENT'S STRATEGIES (CASE STUDY #36)
Usually, strategies built for the Crude Oil (CL) market also work well on the Emini Crude Oil (QM) market, and that is quite understandable. But when you develop a strategy that performs well in other markets as well, like natural gas (NG), heating oil (HO), and also gasoline (RB), you have a solid foundation for your energies portfolio. And that is exactly the case of today’s strategy. This strategy was originally developed for the CL market (and it performs really well there), but besides that, it also has nice results in four other markets.
Let’s start with the basic characteristics of the strategy - it is using two timeframes, a 15-minute one and a 360-minute one, trading both sides long and short, in 10 years, it has generated almost $80,000 in profits, with just a $5,510 close to close drawdown.
You can see more details about the strategy in this overview:
Market: Crude Oil (CL)
Main time frame (data1): 15-minute
Secondary time frame (data2): 360-minute
Time template: 8:30am - 2:30pm
Profit factor: 1.56
Win %: 56.03%
Avg.trade: 107.27 USD
Exit: Stop-loss or Profit Target (avg. winning trade +531.56 USD)
Stop-loss: 1,200 USD (avg. losing trade -440.19 USD)
What is not mentioned in the overview above and what stands out is the number of trades. Usually the strategies I present here have 40-50 trades per year. But this one is doing 73 per year on average (730 in 10 years) which is about 3 trades in 2 weeks.
The ratio of short and long biased trades is exactly 50/50. 365 trades on each side. When it comes to performance, long trades have better statistics, out of $78,310 profit, the long trades did $55,450 (over 70%), with a profit factor of 1.94 and an average trade net profit of $151,92. Another interesting point is the percentage of profitable trades - it is over 60%.
The short trades, on the other hand, have made $22,860, the profit factor is 1.29, and the average trade is $62.63 with 51% of profitable trades.
Let’s take a look at the equity curve now:
The equity is steadily rising, there is a pretty even distribution of profits throughout those 10 years. But there are some periods when the equity is going sideways. The longest flat period is about 80 trades between trades number 530 and 610. This is also when the strategy went through the biggest drawdown -$5,510. Besides this, there are also some flat periods between trades number 220 and 260, then again at 290 to 360, and from 400 to 450. But during none of those went through any big losses and if there were any, the system recovered from them really fast. Don’t forget that it does 73 trades per year, so when the system gets to a drawdown, it is able to quickly recover.
Here is the TradeStation performance report:
Most of these numbers were already mentioned above, so let’s focus now on how well this strategy performs in other markets. In the beginning, I mentioned that the system performs well in 4 other markets.
Let’s start with the E-mini crude oil market (QM):
The equity is not that smooth as for the CL market, but it is also steadily rising, with some minor losses and the total profit is getting close to $40,000.
The next market will be gasoline (RB):
The start is a bit slow, the first 100 trades can raise questions if the system works or not, especially when it goes immediately to $5,000 drawdown, but it also recovers from it quickly and slightly after it starts bringing the first profits. And despite a couple of minor losses, the strategy creates over $100,000 of profits in 10 years, with just about $6,000-7,000 as the maximum drawdown.
The next market from energies will be heating oil (HO):
Again, the first 120 trades are not perfect, the equity is not that flat, there are more minor losses, the maximum drawdown is getting close to $10,000, but it still has stable profits and ends up with almost $70,000 of profit.
The last market will be natural gas (NG):
The equity is considerably worse than those above, but unlike the others, in this market, the strategy was able to generate over $10,000 profit in the first 100 trades. Which is something you should consider when you build a portfolio.
Also, the drawdowns are not that bad and it still generated almost $40,000 profit in 10 years.
As you can see in this case study, you don’t need several strategies to build a portfolio. You can start with a single one. And instead of adding more and more contracts on a single market, you should consider adding more markets to diversify more your income.
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