Automated Trading Strategy 105 (The Cat): What Wall Street Trading Drills Taught Me About Building Better Algorithms
The Dog: Where to trade; The Cat: When to trade
Important: There is no guarantee that ATS strategies will have the same performance in the future. I use backtests and forward tests to compare historical strategy performance. Backtests are based on historical data, not real-time data so the results shared are hypothetical, not real. Forward tests are based on live data, however, they use a simulated account. Any success I have with live trading is atypical. Trading futures is extremely risky. You should only use risk capital to fund live futures accounts and if you do trade live, be prepared to lose your entire account. There are no guarantees that any performance you see here will continue in the future. I recommend using ATS strategies in simulated trading until you/we find the holy grail of trading strategy. This is strictly for learning purposes.
“We spend an extraordinary amount of time waiting for the world to behave sensibly.”
-Alan Watts
Twenty-five years ago, fresh out of college at JPMorgan, you couldn’t tell me anything. I was on the Investment Banking side —my training was all Excel models, DCF valuations, and making sure balance sheets balanced to the penny. We were trained by the best (The King of Valuation who apparently does not age). Our training sessions were calm, orderly, classroom-like.
The Sales & Trading floor? It was a completely different world.
One day during the training program, I ran into a college classmate who had gone to the trading desk. I asked how his training was going.
He looked exhausted. “Today’s drill was insane,” he said. “They made us lose money.”
I laughed. “You mean you lost money trying to make it?”
“No,” he said. “The assignment was to lose money. Deliberately.”
That conversation stuck with me. It confirmed something that makes perfect sense all these years later: the best trader training goes against human nature.
While we Investment Banking analysts were learning conventional skills — financial modeling, company analysis, presentation decks —the Sales & Trading folks were learning how to become market psychopaths —getting put through psychological drills designed to break their intuition and rebuild it.
Another classic drill is called The “Flip It”.
The Setup: You’re trading live. You’re Long NQ, up money, convinced it’s going higher. A senior trader taps your shoulder and says: “Flip it.”
The Challenge: You have 5 seconds to close your Long and open an equal-size Short.
The Trap: Your brain screams “NO! I’m making money.”
What It Teaches: Mental agility. If you hesitate, you’re married to your trade. The goal isn’t to profit on the short. The goal is to see if you can kill your emotional attachment instantly.
Why does any of this matter to algorithmic traders? New traders (and most high frequency algos) share the same flaw: they can’t sit still. Every signal looks like an opportunity. Every change in price demands action.
Where The Dog teaches you to go against your intuition, The Cat teaches that most extremes aren’t extreme enough through one simple rule, The Cat only trades when price is right.
Note: Strategy 77 has the same “extreme” logic as Strategy 105. Strategy 77 is one of my favorite strategies because of its continued high performance. The three variations I’m running this quarter are up $35K on 23 trades with a profit factor of 7.22. I will be emailing both Strategy 77 and 83c to all subscribers on December 25.
This strategy is a complement to Strategy 103, The Dog. I created The Dog to help new traders. New traders love to buy breakouts and sell breakdowns. They chase momentum. They buy high and hope it goes higher. This makes sense in trending markets, but it’s death by a thousand cuts for a ranging or highly volatile market. The Dog teaches you to go against your intuition, entering when it feels wrong. It is a clinic that shows you where to trade.
But here’s what The Dog doesn’t teach: when NOT to trade.
Strategy #105: “The Cat”
Expecting people to act like you is like expecting the cat to bark because you’re in the mood for a dog.
-Alan Watts
Here’s what Strategy 105 looks like in practice. This is a forward test (live data on a simulated account) from September 21 to November 21, 2025 on NQ futures:
Performance Stats for Strategy 105: The CAT
Net Income: $29,740
Total Trades: 39
Profit Factor: 1.98
Average Per Trade: $763
The Cat is the same core concept as The Dog, but it is ruthlessly selective about when it bothers to trade.
I like to run both concurrently.
Why?
They teach complementary lessons:
The Dog: Where to trade
The Cat: When to trade
Together, they cover more scenarios than either alone.
My allocation:
60% to The Cat (quality over quantity)
40% to The Dog (don’t miss opportunities)
Some days The Dog outperforms. Other days The Cat does. Over time, having both produces better risk-adjusted returns than either alone.
You can download The Dog here. The complete C# strategy file for The Cat is available to subscribers for download below.
Let’s dive into what makes The CAT so selective.
Cat Vs Dog
You’ve likely seen a cat wiggle its hindquarters before a pounce. Bio-mechanically, this is the cat testing the ground for traction to ensure maximum force transfer. They are calibrating their footing before committing capital.
Field studies of wild cats (like leopards and cougars) show they will stalk prey for over an hour, inching forward in silence. However, if the prey simply looks in their direction—even without spotting them—the cat will often freeze and abandon the hunt entirely. They take a small loss (time) rather than a large loss (energy/capital) on a bad probability.