#092: MY STUDENT'S STRATEGIES (CASE STUDY #38)
In the previous case studies we’ve had different timeframes - from the usual ones, like 15, 30, 60, or 120-minute we also have had some that are not so usual, like 100-minute, but I don’t think we have had a strategy here that uses a 25-minute timeframe. And in combination with a 425-minute timeframe. But even these experiments can bring you some nice results.
Let’s start from the beginning - today’s strategy is for the Emini Crude Oil market (QM). As you already know, it is using 2 timeframes (25- and 425-min.), the time template is from 8:00 to 14:30, and it is trading both sides, long and short.
It is using just two optimizable parameters, so there is also a lower risk of over-optimizing.
Here is the overview table:
Market: Emini Crude Oil (QM)
Main time frame (data1): 25-minute
Secondary time frame (data2): 425-minute
Time template: 8:00am - 2:30pm
Profit factor: 1.73
Win %: 55.75%
Avg.trade: 88.63 USD
Exit: Stop-loss or Profit Target (avg. winning trade +375.69 USD)
Stop-loss: 1,150 USD (avg. losing trade -282.02 USD)
This combination of timeframes is quite unusual, but it can surprise you in a positive way. In 10 years, it has done $75,515 in profits and in those 10 years, there hasn't been a single year when the strategy lost any money - all of these years have been profitable. The maximum drawdown was in the year 2008, when the markets were quite volatile. And this is also the year when the strategy has done the biggest profit. Let’s take a look at the year by year overview:
As you can see, the year with the biggest volatility brings the most profits, but also the biggest drawdown. In the year 2008, the strategy generated in 74 trades 3x as much profit as the second most profitable year (2007). The average trade was $353, the profit factor was 2.87 and yet the drawdown was just $3,852.50 (about 15% of the annual profit). Let’s take a look at the equity curve and how the year 2008 (and other years) looked like.
The first 114 trades are from the years 2006+2007. The equity looks really promising and there is just about $2,500 in drawdowns. The next 74 trades are from the year 2008 when the equity curve went from about $9,000 to about $35,000. The previously mentioned drawdown is at about trade number 150, when the equity went down, but it recovered from the drawdown almost instantly, in the next 5-10 trades it was doing a new equity high and was almost constantly rising to about $43,000. The equity curve went sideways for about the next 100 trades and then it was also almost constantly rising up to the $75,000. There are a couple of drawdowns, each of them of about $2,000 to $2,500, but none of them exceeded the drawdown from 2008.
But when developing a strategy, you cannot rely on years like 2008. The whole equity needs to be profitable. However, it is a good sign that, with increased volatility, the strategy can still be profitable (and more than any other year).
When you look at the profit factor of individual years, it ranges from 1.2 to 1.8 (apart from 2008) and the percentage of profitable trades is mostly between 50-60%, which is a good sign that this strategy can be profitable in most market conditions.
Let’s take a look at the overview table and how all these years look together:
As you can see in the table, the long trades are outperforming the short trades, the net profit for long trades is slightly higher (1.83 to 1.51) and the percentage of winning trades is better by about 6%, as well as the average trade net profit, which is bigger by about $23. The drawdown for the long side is also better, just about $2,787 to $6,100 for the short side.
So far all these numbers are looking really promising, but how does this strategy perform in other markets? The first one is the crude oil (CL), which is really closely correlated, so we should see a similar equity curve:
And, indeed, the equity curve is really similar to the original one for the QM market. The drawdowns are a bit bigger, they last a bit longer, but the overall profit is also bigger; about $115,000. The maximum drawdown is just under $10,000.
The next related market is Gasoline (RB), which is also a 25-minute market:
In 10 years, the strategy has generated almost $160,000 in profits, but the drawdown is slightly bigger as well, about $15,000. It also took about 150 trades to make a new equity high, which is around 1,5 years. But once it recovers, we can see about $40,000 profit almost without any bigger drawdowns.
All three equity curves are looking really promising. Considering that the strategy has been profitable for every year in the last 10 years and it only has two optimizable parameters, it looks like it can bring some really nice profits to its owner. Of course, these are just part of the overall process of robustness testing.
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