Our Top 5 Automated Trading Strategies By Performance Indicator: Part 1

This article is a product of subscriber research. We want to thank Alex for asking the question and for subsequently allowing us to share it with everyone.

As a quick side note: much of our research comes out of research requests from subscribers. Once we’ve completed the research, the subscriber can choose to share or not share the research with the group. Either way, we reserve the right to use the research in the development of our trade strategies.

To date, we’ve shared our best 32 strategies, but we still haven’t found the holy grail. The following table provides the most recent backtest results:

[Our apologies for the small font, but you can enlarge by clicking on the picture.]

For links to all strategy descriptions, click here.

As you can see, we’ve gotten progressively better over time.

Top 5 Strategies By Performance Indicator

The following is a breakdown of the top 5 strategies for each of our key performance indicators.

Max Draw-down

The table below provides an overview of the top 5 strategies based on max drawdown. Drawdown refers to the maximum drawdown statistic, which provides you with information regarding the biggest decrease (drawdown) in account size experienced by the strategy. Drawdown is often used as an indicator of risk.

  • Drawdown = single largest Drawdown

As an example, your account rises from $25,000 to $50,000. It then subsequently drops to $40,000, but rises again to $60,000. The drawdown in this case would be $10,000 or -20%. Take note that drawdown does not necessarily have to correspond with a loss in your original account principal.

Strategy 23 is the only strategy with a drawdown of less than 3% for the entire year. In other words, it is the only strategy that meets our “holy grail” criteria, but the profitability is too low. Strategy 23 has a profit factor of 1.37, but made only $14K in net profit. Strategies 15 and 10 both had a max drawdown of 3%, and Strategy 10 has a remarkably high net profitability. As a result, it also has the highest return on max drawdown for the second update in a row. Strategy 10 is emerging as one of our best and most consistent strategies, but it also has a low profit per trade. You can read more about how we’re using Strategy 10 to develop better strategies here.

Return on Max drawdown

The table below provides an overview of the top 5 strategies based on the return on max drawdown. Return on Max Drawdown is calculated by dividing net profit by the max drawdown. In this way, max drawdown is considered the max capital investment. You can use the dollar value of max drawdown as a proxy for how much capital you need to trade the strategy. And, the higher the return on max drawdown, the better the strategy is in terms of risk/reward.

Strategy 10 has the highest return on max drawdown due to its low risk/reward ratio. The holy grail of trade strategy has a return requirement of 500%. Perhaps we should revise our criteria upward?

Percent Profitable

The table below provides an overview of the top 5 strategies based on the percentage of profitable trades. This is a metric that shows the number of winning trades divided by the number of total trades.

Strategy 8 has the highest percent profitability at 58%, followed by Strategy 28 and 4 at 54% and 53%, respectively.

Net Profit

The table below provides an overview of the top 5 strategies based on net profitability.

Strategy 3 has the highest average net profitability at $331K, but it also has the highest number of trades, which gives it a profit per day of $1,311, but a profit per trade of only $11. This strategy is ideal for those on a fixed rate commission plan. The same goes for Strategies 9 and 10. Both have high profitability produced by a high number of trades.

Profit/day

The table below provides an overview of the top 5 strategies based on profit per day.

Strategy 3 has the highest average profit per day at $1,311 followed by Strategies 9 and 10. Profit per day tracks with net profitability.

Profit/trade

The table below provides an overview of the top 5 strategies based on profit per trade. The holy grail of trade strategy has less than 5,000, but greater than 500 trades annually.

Strategy 28 has the highest profit per trade at $525/trade followed by Strategies 30 and 25 at $504 and $454, respectively. While profit per day tracks with net profitability, profit per trade does not. In general, strategies with the most trades have the lowest profit per trade and vice versa. Any attempt at finding the holy grail of trade strategy will most likely involve finding a way to break this generality.

This is the end of Part 1. Click here for Part 2.

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