Automated Trading Strategy #63
This portfolio has a backtested win rate of 100% on 1,137 trades over a one year period from March 1, 2022 to March 1, 2023. It made $228K and used 9 different futures instruments.
Important: There is no guarantee that our strategies will have the same performance in the future. We use backtests to compare historical strategy performance. Backtests are based on historical data, not real-time data so the results we share are hypothetical, not real. 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.
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
We haven’t found the holy grail yet, but we get closer with every strategy. Click here for the most recent performance chart.
Strategy 63
“I learned that success or failure grew from a schedule…and I gained direction when my hours were more valuable.”
- John Soforic
If you trade, you're probably a fan of poker, even if you don’t know it yet. There's a reason why some of the best trading coaches happen to also be some of the best poker players. This is because poker, unlike other games of strategy like chess, requires a highly adaptive decision making process that mirrors the unpredictability of life.
For example, a pair of aces can be your best and worst friend. The skill is in knowing how to flesh out which one. This skill is extremely difficult for one reason--it requires the player to know how to lay a hand down or ‘quit’ if the odds turn against them.
Let’s say you’re thinking logically and decide to lay down the hand. The really hard part is when you find out that you would have won had you stayed in the hand. To make matters even worse, you can’t stand the player that just won. Suddenly, emotions flare up and a player enters something known as "tilt".
Tilt is when a player is making bad decisions because they can’t control their emotions. It's a feeling that every poker player (and trader) has experienced. It’s the same feeling that tends to creep up when you start thinking the market is rigged. Here’s a post where I discuss an email received from a trader who suffered with this belief:
So if you meet a good poker player, you know you've found someone that is good at making really good decisions in emotionally fueled situations. They've developed a superhuman power of some sort and it's a power that just might be learned.
What Can An Ex-Poker Player Teach Us About Trading
When I first started playing poker, Annie Duke was one of my favorite players. As a woman, I felt a deeper connection to her style of play than say her brother, Howard “The Professor” Lederer. Both are equally regarded as legend in the world of poker.
Those that read Duke’s books and attend her workshops are no doubt hoping for some of the superhuman magic to rub off, at least where the art of making calculated bets is involved. Duke has long retired from poker, but according to Wikipedia, as of September 2021, Duke's total lifetime live tournament winnings were over $4 million. Not surprisingly, Duke's Substack is called Thinking In Bets.
One of her latest posts is titled "Why Quitting is Underrated" and it discusses one of these lesser known superpowers -- the art of quitting. Here’s an excerpt:
The act of quitting takes little effort, but knowing when to quit, why you quit, and how to use what you've learned to make a better attempt on a new day is an art-form. The trader that knows the perfect time to quit or exit a trade cannot escape success.
Naturally, I've been thinking of ways to embed this logic into our overall strategy and realized that "quitting" in the world of trading, as in life, can have many meanings. It refers to trade exit, which can be forced or unforced. It can mean the end of the trading day or end of the trading session, or even end of an hour or minute. It could even mean blowing up an account, which is the ultimate forced quit. Like life, trading is full of many forced quits. And, like life, it’s best to focus on those things that you can control.
In strategy 63, we're applying the art of quitting to two of our best strategies. It is the first portfolio to have a backtested win rate of 100% on over 1000 trades. I want to be clear about what we’re saying—I’m telling you that Strategy 63 meets all but one of our criteria for holy grail status. It has a(n):
Profit factor greater than 3
Annual return on max drawdown greater than 500%
Maximum daily net loss of -$1,000
Less than 5,000 trades annually
More than 253 trades annually
The only thing that it does not have is an annual drawdown less than 3%. Well, it does if you’re basing drawdown on end-of-day account value rather than intra-day account value.
Most strategies with a backtested win rate of 100% are due to simulation error. For example, unless you know what you’re doing, if you use a limit order in a backtest you will likely get very different results in a live test. On the contrary, the reason I’m so hopeful about this backtest is because it's essentially a “selection process” rather than a strategy. And, it’s a selection process that has already been proven to work in both live and simulated formats.
Why Do We Think The “Selection Process” Works
At the beginning of the year we started our Q1 2023 forward-test on several strategies. We also started testing some strategies using evaluation/funded accounts from Apex with the hope of being able to use the evaluation/funded account as both sandbox and funding source.
We started with ten, $150K evaluation accounts. We're now down to only two accounts, but both are live. In other words, these are the only accounts to pass the evaluation. Passing the evaluation means hitting a total net profit of $9K without hitting the trailing stop of $5K. Today, both accounts are live. One account is up $1,500 and the other $5,400.
The strategies used in these two accounts beat out all others and they have one thing in common: the use of unforced quits. Strategy 63 combines the attributes of both strategies. These are the results of the Strategy 63 portfolio which has 8 different variations:
Keep in mind, this portfolio has a backtested win rate of 100% on 1,137 trades over a one year period from March 1, 2022 to March 1, 2023. It made $228K and used 9 different futures instruments. Only one contract was used on each instrument. To estimate the net income on two contracts, double the total. To estimate the net income on three contracts, triple the total, and so on. If you want to focus on the top three instruments, you could do that by only running strategy variations on FDAX, NQ and ES.
With that said, let’s get into how to recreate Strategy 63 for yourself.
Strategy 63 Description, Command Structure & Download (C#)
Two tools that help to create unforced quits in the world of trading are the use