Cultivating Cash Flow
Why Trading's Holy Grail Might Be Consistency, Not Profit
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 untypical. 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. This is for educational purposes only. I recommend using ATS strategies in simulated trading until you/we find the holy grail of trade strategy.
"Everything is figuroutable."
- Marie Forleo
From Lightning to Rivers: Hacking The Holy Grail
When I was a kid, there was no greater sign of true genius than being able to solve a Rubik's Cube. My friend's brother could always solve it. I didn't understand how, because he wasn't that smart. Later I found out from his sister that he would take them apart and reassemble. Some might consider this cheating, and they wouldn’t be wrong in the truest sense, but he had also redefined the problem and we were none the wiser because the outcome was the same.
History is forged by those who hacked conventional systems. Copernicus revolutionized astronomy by placing the sun at the center. Toyota eliminated inventory management problems through JIT manufacturing. Amazon replaced passive PowerPoint presentations with 30 minutes of engaged memo reading for more productive meetings.
Rethinking the fundamental approach to a problem can lead to cascading benefits beyond the initial improvement. This post is going to discuss a fundamentally different approach to defining a successful trading strategy—chasing cash flow consistency over profit. Why chase unpredictable patterns in the market when you can harness predictable patterns in cash flow?
Trading Consistency over Profit
Old Problem:
Most traders (like myself) chase profitable trades, using profit factor as their north star—like trying to catch lightning in a bottle. They try to predict price movements and maximize winning trades. This requires a great deal of patience, which is why it’s ideal for automation. We've followed this path for exactly four years (today is our four year anniversary), finding several champion strategies that strike lighting on a consistent basis, especially when traded together in a portfolio. But we haven't found that standalone holy grail yet—perhaps we need to redefine the problem.
New Problem:
Instead of predicting market movements, how about we focus on finding predictable patterns in cash flows, regardless of direction. Like a hydroelectric dam, it's about harnessing the flow of energy rather than trying to catch lightning. Some traders might view this as cheating, but it’s an honest hack with the promise of more consistent outcomes. And now that we have AI, we can use sequential algos to test this theory.
This represents a fundamental shift from trading market movements to trading the strategy's inherent characteristics, which has several advantages: