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#066: MY STUDENT'S STRATEGIES (CASE STUDY #25)


Quite a lot of traders who start with automated trading strategies, first create systems for index markets like Russell 2000, S&P MidCap 400 or others. It is easier to find strategies for these markets and it is faster to build your first portfolio. But with time, when the portfolio contains more systems, it is not so easy to find a new, low-correlated strategy that would improve the overall performance of the portfolio and reduce the drawdown. This is, as I describe in this article, one of the best ways to make your portfolio’s equity smoother, and reduce your drawdown - by adding new, low-correlated strategies. What you should do is start looking for systems trading markets from different categories.

When you have a portfolio for index markets, you can develop a system for US 30-year treasury bond (US). For this market, it is not so easy to build a strategy, you need to be persistent. But it can be done. Like the following strategy that is using a combination of 15 and 240-minute timeframes. It has done 1,248 trades in 10 years which have generated $87,000 profit. Trade close to trade close drawdown is still an acceptable $6,718. That is giving us an annual net profit to drawdown of approx 1.3.

More details are in this table:

  • Market: US 30-year treasury bond (US)

  • Main time frame (data1): 15-minute

  • Secondary time frame (data2): 240-minute

  • Time template: 9.30 - 16.15

  • Profit factor: 1.56

  • Win %: 54.57%

  • Avg.trade: 69.69 USD

  • Exit: stop-loss or at 16:15 exchange time (avg. winning trade +357.15 USD)

  • Stop-loss: 1,218 USD - only protective, barely hit(avg. losing trade -310.64 USD)

Average trade could be little bit higher, as the slippage can really take some of your profits. Single tick represents in this market more than $30. That can reduce your profit by almost a half. So you need to have a really good internet connection and have your trading computer located close to the stock exchange to have a good trade execution.

The strategy had a slow start. In the first almost 150 trades (little over one year) it didn’t make any significant profit. This slow beginning was followed by steady rise to about trade number 700 when it reached $70,000 profit. Then the drawdown came - $6,700. The recovery didn’t take long, it took less than 50 trades to recover from it and then there was another rise to the $87,000.

Let’s take a look at more details:

Over 1,200 trades in 10 years is a really nice number and it gives us some space to filter out some of the losing trades using an additional filter. All trades are equally divided between long and short, and almost 55% of all trades is profitable.

What about other markets? The system is also profitable on 10-year US Treasury notes (TY), gold (GC), and oil (CL). But the biggest benefit of this system for its creator was when he added it to the portfolio. Adding this strategy to his existing portfolio, containing strategies for index markets, reduced the portfolio drawdown by over 40%! You can see how powerful this method of adding low-correlated strategies is. Therefore, you really shouldn’t focus on the drawdown of an individual strategy, but investigate what impact the strategy will have on your portfolio.

You can learn more about the workflow I teach by clicking here to start creating similar systems by yourself today.

Happy trading!

Tomas

Click here to read more success stories.

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What others are saying

"Tomas is one of the most creative traders I know. He is able to generate unique trading ideas and elegant solutions to system development challenges."

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Andrew Swanscott, BetterSystemTrader.com

"Tomas has been a professional trader for more than a decade and I have had the privilege of monitoring his accounts in action since 2006. His systems are performing as some of the best I have ever monitored and executed. I have been in the trading industry since 2002 and worked with many developers from all over the world. Tomas is definitely the one to consider."

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Martin Lembak,

Systems Trading Expert,

MFRM, CAIA 

"Tomas is a professional trader, who for the last 10 years has specialized in developing trading systems. We have been tracking his trading systems for about 5 years and they generally show very robust, stable and above average performance. Striker is pleased to work with someone like him - a real professional with enthusiasm and deep knowledge of trading."

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William Galwas, President Of Striker Securities, Inc 

"Personal consultation with Tom helped me to re-evaluate the complexity of my robustness testing and optimization processes. Plus, it has helped me with a specific plan on how to take things forward. It has given me some great ideas on how to avoid overfitting and make my testing more robust and provided tips on low hanging fruit in terms of the best markets to trade for intraday/short-term breakouts."

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Craig Peters,

semi-advanced trader,

United Kingdom 

"Tom's approach to Automated Trading Strategies design, tests of robustness and portfolio diversification is really unique. He has been a professional trader for many years and the depth of his understanding of Breakout strategies and Market Internals is hard to find elsewhere."

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Antonin Fisher,

Hedge Fund Manager,

Czech Republic 

"Tom´s systems and trading approach do really work and can bring good, stable and reasonable returns. I can highly recommend him as a teacher."

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David Hruby,

Trader, Czech Republic 

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Author: Tom Nesnidal (more about me) 
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