Automated Trading Strategy #53
Based on our backtest, the portfolio made $126K with a profit factor of 2.54.
There is no guarantee that any strategy will have the same performance in the future. Some may perform worse and some may perform better. We use backtests to compare historical strategy performance. Backtests are based on historical data, not live data. There are no guarantees that this performance will continue in the future. Trading futures is extremely risky. If you trade futures live, be prepared to lose your entire account. We recommend using our strategies in simulated trading until you/we find the holy grail of trade strategy.
For a link to all strategies and the most recent performance chart, click here.
Click on the table to enlarge.
As a quick reminder, our goal is to find the holy grail of automated trade strategy as defined below:
Profit factor greater than 3
Annual drawdown less than 3%
Annual return on max drawdown greater than 500%
Maximum daily net loss of -$1,000
Avg Daily profit greater than $1,000
Less than 5,000 trades annually
More than 253 trades annually
Today, we’re introducing Strategy 53.
As a I said at the end of Strategy 52, most strategies don’t perform the same in all markets. The few that do tend to rely on market extremes. Strategy 52 is a strategy that relies on extremes. Extremes provide opportunities regardless of the market, but they are generally found in trending or directional markets rather than sideways markets.
In addition to extremes, a trader could also make a lot of money by being able to identify when a market is trending or moving sideways. A sideways or consolidating market is one without a trend. It’s usually caught in a tight range or consolidating. How can we think about this in terms that an automated strategy can understand and identify?
Well, we know that trending markets generally happen with volume. We also know that price tends to move quickly in trending markets. So, one way to identify a trending market with the use of indicators might be to isolate on high volume, high price change areas — in other words, you’re looking for a profile that is marked by high volume on a fast moving price. Now just because you’ve identified a high value area, doesn’t mean you’re always going to find a profitable trade opportunity there, it just narrows your search. In the strategy description below, I’m going to show you how we identified areas of opportunity within these high value areas.
There are 9 contracts within this portfolio:
CC - Cocoa; 100 minutes
CL - Crude Oil; 83 minutes
CT - Cotton; 68 minutes
ES - E-Mini S&P 500; 91 minutes
GE - Eurodollar; 59 minutes
KC - Coffee; 92 minutes
NQ - E-Mini NASDAQ 100; 75 minutes
RTY - Russell 2000; 89 minutes
ZN - 10 Year Note; 74 minutes
Based on our backtest, the portfolio made $126K with a profit factor of 2.54. Each instrument is optimized based on a minute based data series.
You can also trade any of these contracts alone. This is the cumulative net profit of the strategy based on 1 NQ contract:
As you can see, it is marked by sharp movements up and lengthy, yet shallow, draw-downs. It has:
an annual net profit of roughly $30K,
a max drawdown of only 1.52%,
a ‘lowest’ daily low of -$750,
a ‘highest’ daily high of $7,565.
It also never falls below -$30 (cumulative net profit). So this is a strategy that never went below -$30 on a cumulative basis and never lost more than -$750 on any given day.
You can also trade KC, which has a net profit of $23K, a profit factor of 5.09 and a percent profitability of 71%. This is the cumulative net profit performance chart based on the KC contract:
KC is smoother and has a steadier movement upward in contrast to NQ. KC is less volatile than NQ so net income is lower, but profit factor is higher. This is often the performance trade-off among instruments and we’re using this trade-off as a way to maximize the strategy’s performance (more on this later).
In total, there are 651 trades in this portfolio (based on the backtest) with a net profit of $126K and profit factor of 2.54. You’ll also notice that the number of profitable trades is 44%, which is low. This is because Strategy 53 has an average win/loss ratio of 2.94. That means the average winning trade is 2.94x more than the average losing trade. In dollar terms, the average losing trade is $246 while the average winning trade is $724. All together, this is telling us that Strategy 53 is very good at cutting losses and increasing gains. This is a strategy that trades on high volume on a fast moving price, so this makes sense. I’ll talk about the indicators we use and why that is in the strategy description.
Now, let’s get into how to recreate Strategy 53 from a description. I’ll start with the concepts and indicators used so you can recreate using whatever platform/language you’re familiar with. I’ll also show you the command structure within Ninjatrader 8’s strategy builder. The strategy is also available for download (C#) below. Remember, you can test all strategies by duplicating our backtest results above and if you need help, just send me an email.
For links to all strategies available within the ATS subscription, click here.
For links to all strategies available within the ATS Mini subscription, click here.
Strategy 53 Description & Download
Strategy 53 is a strategy that seeks to identify high volume trading opportunities on a fast moving price.