#096: MY STUDENT'S STRATEGIES (CASE STUDY #40)
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#096: MY STUDENT'S STRATEGIES (CASE STUDY #40)

One of the most common questions I receive is - which market is the best to start with? Where is it easiest to find a robust breakout trading strategy? And I always recommend e-mini markets (EMD, TF or others). As you can usually find a robust strategy pretty quickly, with a drawdown that is below $5,000. And the strategies that I present to you just prove it - as most of my students start with these and then move on to other markets, to diversify their portfolios.

 

And today I would like to present you another, really nice strategy for one of these markets - the EMD.

 

It trades both sides, long and short, combines 10-minute with 390-minute timeframes - that is basically daily for this market as the time template used is 8:30am to 3:00pm. But let’s take a look at the overview table:

 

  • Market:                                              E-mini S&P MidCap 400 (EMD)

  • Main time frame (data1):               10-minute

  • Secondary time frame (data2):     390-minute

  • Time template:                                 8:30am - 3:00pm

  • Profit factor:                                      1.79

  • Win %:                                                59.22%

  • Avg.trade:                                           89.18 USD

  • Exit:                                                     Stop-loss or Profit Target (avg.
                                                                 winning trade +341.12 USD)

  • Stop-loss:                                           1200 USD (avg. losing trade -287.16                                                               USD)

 

When it comes to profits, this strategy has done $125,300 in little over 11 years. That is over $11,000 per year on average. The close to close drawdown is $5,260, making the average annual net profit to drawdown ratio 2.1.

 

What is also worth mentioning is the number of trades. The strategy has done 1,405 trades in 11 years, which is on average about 127 trades per year, or almost 2.5 trades per week. That means that when a strategy gets into a drawdown, we usually don't have to wait that long for the recovery. Talking about the duration of drawdowns, let’s take a look at the equity curve:

 

 

The first look at the equity just confirms the numbers we have already discussed - over $125,000 profit in little over 1,400 trades. And the equity curve itself doesn't look that bad, either. We already know that the biggest drawdown is a little over 5,000, and it is probably the one at the end of the equity curve, at trade #1,300. Before this one, there is another one that is worth mentioning, at about trade #1,175, and a smaller one (about $2,000), at trade number 850. The longest one was the first one - where it took a little over 100 trades to get to a new equity high. For most of the strategies, it would mean 2 years, but this one does it in about 9-10 months.

 

Even the annual distribution looks really promising; we don’t have most of the profits in one period, but it is throughout the year. Let’s take a look at the numbers year by year:

 

 

A really good sign is that every year, the strategy was able to make some profits. It would be nice to see more profits in 2012 and especially in 2014, but it is still good that they were profitable, and also we can see an increase in 2015 - there is $6,030 profit in 4 months.

 

So far so good. But what I haven’t mentioned yet is the distribution of trades between long and short. Let’s take a look at the performance report:

 

 

The distribution of trades is 820 for long and 585 for short, and there is a similar ratio for the net profit. The long trades have done $76,050, while the short trades have done $49,250. Also, the profit factor for long trades is a bit higher (1.97 for long, 1.62 short), the average long trade is about $8.50 higher than the average short trade and the percentage of profitable long trades is about 6% higher.

 

The long side looks a bit better than the short side, but the numbers for the short trades are still pretty good, and it has still done almost 40% of the profits.

 

Let’s see if this strategy also performs well in other markets. Or, if it is just an over-optimized equity curve. Usually, strategies for EMD markets work well in TF as well (and vice versa). Is this also the case?

 

 

It seems that it is. The equity is steadily rising, the maximum drawdown is about $4,000, overall profit $45,000.

 

Let’s confirm it on another one - the ES market:

 

 

And this time it seems to be even better than the TF market - almost $80,000 profit and 1,300 trades in 11 years. There are barely any drawdowns, just a couple of flat periods. A really nice result.

 

To be fair, I need to note that this strategy is a bit different to others. This has been improved by the market internals, which improved the strategy parameters and made the equity even better.

 

But I am sure that even without this improvement, this is a great strategy and the performance in other markets just prove it.

 

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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