Automated Trading Strategy #68
Strategy 68 is a scalping/HWR strategy that made $54K based on a 12-month backtest. It has a win rate of 100% on 102 trades and trades up to 5 contracts.
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. To see the most recent backtest of all ATS strategies, along with strategy description links, click here.
This strategy is dedicated to Bubba, one of the most beautiful dogs I’ve ever known. He taught us how to be free and kind. Kona will never be the same.
As a quick reminder, our goal is to find the holy grail of automated trade strategy.
We haven’t found the holy grail yet, but we get closer with every strategy. Click here for the most recent performance chart.
Strategy 68 is part of our high win rate (HWR) series that started with Strategy 63. Here’s a performance chart of the backtest over the last 12 months.
Here’s a breakdown by hour of day:
…and day of week:
This is a summary of trade stats for the backtest:
Strategy 68 made $54K on 102 trades. It has a win rate of 100%. In the absence of a draw-down statistic for HWR strategies we’re going to use max MAE as a proxy for max drawdown, which is $8,825 for Strategy 68—so this is the minimum amount you need to have in your account at all times while running the strategy. Keep in mind, this MAE occurred when the strategy was trading 5 contracts, which is the most it is set to trade. What’s more, it can only trade 5 contracts after making $8,000 in net income.
You could also choose to run this strategy on one contract, but according to Nick the Greek, you’re a sucker for leaving money on the table. In this post, we’re also going to explore how we can use the gambling secrets of a Vegas legend to help boost our HWR strategies even further. Let’s get into it…
Nick the Greek, aka, Nicholas Andrea Dandolos
I love people watching. One of my favorite activities when I lived in Arizona was going to the casino. I would order Chinese food and play roulette while I waited for the order. The odds on roulette are miserable, but that’s not what I played for. I played for the ability to watch people. The thrill they had when they won. The writing and scribbling on pieces of waded up paper, napkins and palms of hand. Women and men with oxygen tanks, and fake everything, especially breasts, teeth and hair. Every age, every walk of life, every size and class — they would all take their seat at the roulette wheel. A wheel that was said to be impossible to beat by the great physicist and mathematician Albert Einstein himself.
In 1968, a controversial reporter named Ted Thackrey, Jr. reported on Einstein’s famous remarks in a series of articles titled “Secrets of a Master Gambler”. The fourth article discussed Nick the Greek, aka, Nicholas Andrea Dandolos. Evidently, Nick introduced the father of modern day physics to his ever suspicious Vegas cohort as “Little Al from Princeton—controls a lot of the action around Jersey.” Later, Thackery would publish the book Gambling Secrets of Nick The Greek, with a candid introduction from Groucho Marx:
In the book, Einstein discusses the odds of various games and wonders why someone would play a game with such poor winning odds.
Indeed, Albert Einstein once made the flat statement no one could possibly win at roulette “unless he steals money from the table while the croupier isn’t looking.”
But during the little mathematician’s visit to Las Vegas the Greek stopped off briefly at a roulette table, bought a handful of chips, plunked them down on red — won — and let them ride for two more spins, on which red also appeared.
Then he cashed in, pocketed his winning and grinned at the scientist.
In the book, Einstein was apologetic:
“Any questions?”
“One,” said Einstein.
“And it is . . ?”
“I was wondering if you would be kind enough to wash my mouth out with soap?”
According to Thackeray the event at the roulette wheel occurred when Nick was showing Einstein around the city:
…when the great mathematician decided to make a brief stopover in the gambling capital during a coast-to-coast journey, it seemed only natural that The Greek should be waiting at the airport to greet him and conduct him on a special tour of the city’s principal points of interest.
In 1919, in the Graustarkian principality of Monaco, the Monte Carlo Casino was filled with names that made history: The Count of Paris, the reigning monarch of Spain and Denmark, the temporarily deposed King of Greece, a Vanderbilt or two, and one Rockefeller. Then there was Nick. A man that made a subtle mark on history that is rarely, if ever, talked about except in his conversations with Einstein. He also gave millions to charities, sent 29 of his friend’s children to college and paid hospital bills anonymously for thousands of people.
As the story goes, no one ever knew how old Nick was, but he was a well educated linguist (7 languages) and poet. A devotee of Plato and Aristotle, he lost both his father figure and fiance in the same day and grieved their loss at the race track. When he emerged from a four month depression, he had amassed a small fortune. He took that fortune to many places and finally to Vegas where he invested in a cafe run by his protege, Harry. Harry had almost blown his brains out after losing his life’s savings in a craps game. Nick gave him money to start anew. Here’s a quote from Nick explaining his relationship with money:
This is the only logic that could possibly explain his career, which spanned 60 years. It is estimated that he won and lost $500M. In a game of poker, he took Arnold Rothstein "The Brain" for $605K. Rothstein sent him a Rolls Royce the next day as a token of his esteem. Nick sent it back saying he had no use for a car. When he died, the sum total of his possessions could fit into a shoe-box.
No doubt this lack of fear, which I quite frankly would never want to have, is what gave him an edge. He was never scared to lose. He had the ability to “quit” at any time (for more on artful quitting read the article Why Quitting is Underrated). This seemingly magical ability allowed more insights into games of chance than others (even the Kings and Queens of society) could afford, and he used this superpower to conquer the gambling world. Imagine what he could have done with the futures market.
Wall Street Vs The Street Corner
If you’re a fan of the movie Trading Places (one of the best movies of all time), you know that there’s not a lot of difference between Wall Street and the street corner. This was especially the case back in the day when live trading floors existed. It is astonishing how much Jesse Livermore and Nick the Greek have in common. The former is arguably one of the best traders to ever play the game, the latter one of the best gamblers. While trading isn’t a game of chance, at the end of the day, both were experts at exploiting opportunity, and both would have exploited the hell out of a system with a 95% win rate.
There are many ways to define the holy grail, but one of the easiest would be a strategy with a 100% win rate. Finding strategies with a 100% win rate on the backtest is one thing, but do the strategies actually work? We’ve been working on finding HWR strategies for a few months now. Some have panned out, others haven’t.
The obvious challenge is finding HWR strategies with over 50 trades for the year, an annual net income over $10K and a low maximum Max Adverse Excursion (MAE). To do this, we’ve created a HWR template for the NT8 Strategy Analyzer (thanks for your help on this Steve) that I’ll provide for subscribers below. The template helps to turn almost any strategy into a HWR strategy. You can then use a framework like the one we’re developing in the Mudder Report to identify and fix defects.
What else can we do to improve our win rate?
For this, we go to the masters of finding edge—professional gamblers like Nick the Greek. I’m currently making around $200-$300 a day using Strategy 65. This HWR strategy has a win rate of 95% without the secrets of Nick the Greek, and 98% with. So far, 51 out of 52 trades is a win. This is essentially a scalping strategy. All trades are taken in the morning. It’s currently up $3,519; the first trade was made on May 25.
I’m looking forward to scaling up as the system allows and will keep you posted on how it goes. Click here for the list of trades. As a special note to all of you that worry about slippage; as you can see, slippage happens both ways. Each trade is supposed to make $100, but that amount changes based on how fast the market is moving. Sometimes it’s more than $100, sometimes it’s less.
The Trader’s Martingale
The Martingale system is the gambler’s version of a high win rate (HWR) strategy. The gist of the system is that you bet on red or black (both have a 50% chance of winning). If you win, you double up. If you lose, you double your wager on the opposite color. The system has a 100% win rate as long as you have an unlimited bankroll. Talk about PTSD.
Can you imagine what gamblers like Nick the Greek would have done with a table that paid out 95% of the time instead of only 50%? No casino in the world would offer this table, but we can engineer this table in the markets with the use of HWR semi-automated trading bots. The market is different, but the idea is the same and much easier to employ. That’s why every year you’ll find a story about a kid from Berkeley or MIT that’s been banned from Vegas. They get banned for winning too much, not for cheating.
So what do these gamblers know that we mere mortals don’t? Well, from my research, there are five things that expert/professional gamblers like Nick the Greek know how to do that we can integrate into our process, some of which are already incorporated into the HWR Strategy Analyzer template: