#094: MY STUDENT'S STRATEGIES (CASE STUDY #39)
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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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#094: MY STUDENT'S STRATEGIES (CASE STUDY #39)

Most traders focus on US markets, but we should not forget that there are other markets that we can trade as well. One of the most popular choices for European traders is the German stock exchange and the EuroStoxx 50 (FESX) market. It represents 50 of the most liquid and largest stocks in eurozone. Most of the companies are from France and Germany, but there are also companies from Belgium, Finland, Ireland, Italy, Netherlands, Great Britain, and Spain.

 

Despite being in eurozone, in most cases it is better to trade these markets at the same time that the US markets are open. And this strategy is not an exception - it is traded from 3.30pm to 9.45pm local CET time.

 

Here are the rest of the basic parameters:

 

  • Market:                                             EuroStoxx 50 (FESX)

  • Main time frame (data1):              15-minute

  • Secondary time frame (data2):    150-minute

  • Time template:                               3:30pm - 9:45pm

  • Profit factor:                                    2.07

  • Win %:                                              59.61%

  • Avg.trade:                                         47.72 USD

  • Exit:                                                   Stop-loss or Profit Target (avg.  
                                                               winning trade +155.07 USD)

  • Stop-loss:                                         600 USD (avg. losing trade -123.34                                                                  USD)

 

You can see in the overview, that the timeframes that this strategy is using are also not the usual ones. The first one isn’t that special, we have it here quite often - a 15-minute timeframe, but the 150-minute (2.5 hours) for data 2, that is something we don’t see every day. And looking at the profit factor of over 2.0, it is a combination of timeframes that works.

 

What is also worth pointing out is that the strategy uses quite a small stop-loss, just $600. Usually, automated strategies need a stop-loss that is over $1,000. And the close to close drawdown of this strategy is also quite low when compared to others, just $1,100. But, on the other side, it still managed to get almost $20,000 profit in 6.5 years. The average annual profit is over $3,000 and the ratio to close to close drawdown is over 2.7, which is a really nice value.

 

Does the equity look that nice as well? Let’s take a look at it:

 

 

On the chart, we can see an almost constantly rising curve with 3 major drawdowns. All of them are roughly $1,000. The first one is at about trade number 100, the second one is at number 200 and the last one is part of the flat period at the end. From trade number 300, the strategy struggled to make a new equity high, but just before trade number 400, it managed to recover from the drawdown and make a new equity high. Since the strategy has done 411 trades in little under 6.5 years, the average number of trades is about 63 per year. That means that the flat period at the end is for almost 2 years. But yet, the strategy managed to recover from it and make a new equity high.

 

Let’s take a look at the performance summary:

 

 

The strategy is long-biased only, it has done almost $20,000 in 411 trades and in 6.5 years, the average trade is quite low, slightly over $47. But on the other side, it is good that the drawdown is just over $1,100, making this strategy suitable for smaller accounts.

 

Let’s take a look at how it works on a 30-minute timeframe:

 

 

The results are slightly worse than on the 15-minute chart. The first 3/4 are pretty much the same, steady rise, with just 2 major drawdowns, but then we can see an almost $4,000 drawdown from over $16,000 to over $12,000.

 

Is it better in other markets? Let’s take a look at the German stock index, DAX, with a 15-minute timeframe:

 

 

The equity is also similar to what we saw before. The beginning is promising, there are some acceptable drawdowns, but the end is flat again. Luckily, the drawdown is not that big and flat periods like this one aren't really exceptional in trading.

 

It is good to also test it on some US markets, like S&P 500 (ES):

 

 

In this case it is something far from tradeable, not even $10,000 profit in 9 years, with over $4,000 in drawdowns, but at least the strategy is still profitable. And on a completely unrelated market, which is a good sign.

 

The overall performance is really promising, the strategy is looking good, only the last part of the equity curve is something that can be better. It is always good to test these strategies for a couple of months and see how they perform before you start trading them live. A testing period of 3-6 months can tell us more about the future of this strategy.

 

Click here to learn how to build similar (and even better) strategies.

 

Happy Trading!

 

Tomas

 

Click here to read more success stories.

 

 

 

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