Automated Trading Strategies: May Update, Highlights, Key Takeaways & What's Next

Every two months we like to take a look at how our top strategies are performing and update you on our key findings, highlights, takeaways and what’s in the pipeline.

First, let’s get into the update.

The following update is for backtest results ending on May 3, 2021.

Quick note, all strategies are based on the NQ futures contract.

Key takeaways: 1 Year Backtest Update

Jan 6 2021 1 year backtest results

March 6 update 1 year backtest results

The first thing you’ll notice is more strategies. Only strategies 1-9 are currently published. That is, we’ve only published the instructions for how to duplicate strategies 1-9. Look for instructions on how to duplicate strategies 10-15 coming out in the next 7 days. As long as you’re signed up with us on Substack, you’ll receive a notification via email.

As a quick note, strategies with a profit factor less than 1.05 are sent out to all subscribers (both Medium & Substack). Strategies with a profit factor greater than 1.05 are behind a paywall on Substack.

You will also notice two new columns. One is Percent Profitable and the other is Profit Factor.

  • Percent Profitable refers to the percentage of profitable trades.

  • Profit factor is the ratio of gross loss and gross profit.

You can read more about why we decided to add profit factor here.

  • In the 1 year update, only 1 strategy was more profitable: Strategy 4. All others were less profitable. Interestingly about Strategy 4, while all other strategies dropped in the number of trades, Strategy 4 remained unchanged. That said, the drawdown dropped from -24% to -12%.

  • Why is this happening? In general, the first quarter of 2020 was extremely volatile due to COVID. Automated strategies thrive on volatility so the net profit is lower this year. That said, drawdown is also considerably lower. Our lowest drawdown in the update is 8.84% compared to 13.72%. The highest drawdown in the update is 21.72% compared to 36.80%.

  • In addition to a lower drawdown, all strategies also made fewer trades, which makes sense due to lower volatility. Likewise, while only one strategy was more profitable in terms of net profitability, Strategies 2 & 5 had the same profit per trade as they did last year.

  • In terms of the percentage of profitable trades, Strategy #8 is the highest at nearly 58%. This is the first time we’ve added percent profitable to our chart so we don’t have a basis for comparison against last year. Strategy #8 also has the second highest profit factor at 1.12 followed by Strategy #7 at 1.28.

Highlights / Conclusion:

We like Strategies 4, 7 and 8. Strategy 3 is performing well from a net profit perspective, but be ready for 80+ trades per day, which significantly brings down the profit per trade.

While these are our favorite strategies, we’re still not happy. As a quick reminder, our goal is to find the holy grail of automated trade strategy and we think we can find it faster together.

We’ve defined the holy grail of trade strategy to be the following (based on annual performance):

  • Profit factor greater than 3

  • Annual drawdown less than 3%

  • Annual return greater than 500%

  • Minimum daily net profit of -$1,000

  • Avg Daily profit greater than $1,000

  • Less than 5,000 trades annually

We have yet to find this illusive trade strategy, but we’re on the hunt!

If you subscribe to our newsletter, you’ll be among the first to find out when we do.

What’s coming:

  • Giving away free annual subscriptions: If you have an annual strategy with a profit factor greater than our highest published profit factor (currently 1.28), we will give you a free paid subscription for one year. Just shoot us an email (automatedtradingstrategies@substack.com).

  • New Service For All Paid Subscribers: Research Requests. Our first research request wanted to know if timing could increase our profit factor. The short answer is yes. Stay tuned for a post where we tell you how much.

  • Total Investment Vs Reinvestment: We recently received a question regarding total investment. They wanted to know how much a trader had to invest in each strategy, not just net profit. In other words, if we say we’ve found a strategy that makes $100K a year, how much did it take to make $100K in one year. Did it take $50K or did take $1 million? It is a valid question and we wanted to take some time to answer it. Look for our post coming soon.

  • New Strategies Coming: We will be introducing 5 new strategies (seen above) in the next 7 days.

If you have any questions, feel free to contact us by responding to any of our emails or email us at automatedtradingstrategies@substack.com.

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