#082: MY STUDENT'S STRATEGIES (CASE STUDY #33)

As you already know, one of the reasons why I highly recommend to start with Emini is that it usually doesn’t take much time (compared to other markets) to build a profitable, robust strategy with a profit factor above 2.0.

And here is another example of why I insist so much on its qualities: a long-biased strategy for e-mini Russell 2000 that has made over $100,000 profit in 10 years, with just a $3,480 drawdown. Making an annual profit to maximum drawdown of over 2.8. Which is something you don’t see that often.

Let’s take a look at the setup:

Market: E-mini Russell 2000 (TF)
Main time frame (data1): 15-minute
Secondary time frame (data2): Daily
Time template: 8:30am - 3:15pm
Profit factor: 2.23
Win %: 58.14%
Avg.trade: 138.88 USD
Exit: stop-loss or at 3:15pm exchange time (avg. winning trade +433.56 USD)
Stop-loss: ATR-based (avg. losing trade -270.45 USD)

The 10-year net profit is $103,190, which also includes $10 commissions for each trade. The strategy has done 743 trades in 10 years, meaning $7,430 in commissions. Usually the commissions are $2.50 per side ($5 per trade), but in this case there is a buffer for slippage.

The average annual number of trades is 74, which is about 3 trades each two weeks and, based on the percentage of profitable trades, roughly 2 out of these 3 will be profitable.

So, how do these numbers look on the equity curve? Let’s take a look:

The equity looks really good, we can see an almost constant rise with just a couple of losing periods, like the biggest drawdown ($3,480), which is between trades #200 and #250, and then a flat period between trades #550 and #600.

These periods that last 50 trades mean about 8 months. That can be quite a long period, but the drawdown is still just $3,480 from the last equity high, which is still acceptable.

Let’s take a look at the rest of the numbers in the TradeStation performance report:

As I already mentioned, the average net profit is $138 (that includes the $10 commission), which is a really nice value for the TF market. And so is the 2.23 profit factor and that almost 60% of all trades are profitable.

Let’s take a look at other emini markets. Let’s start with e-mini S&P 500:

In this market we can see about 450 trades in 10 years, the total net profit is about $38,000, and the maximum drawdown is between $3,000-$4,000. The equity curve is not as great as the one for the Russell 2000 market, but it still looks good and, with some slight adjustments, it can be tradeable as well.

Will e-mini Nasdaq 100 (NQ) look better? Let’s take a look:

The number of trades is similar, about 420, but the 10-year net profit doesn’t even reach $18,000, and the maximum drawdown is about $2,000. But you can still see that the strategy creates new equity highs and it doesn't take that long to recover from a drawdown.

Despite the equity curves in the ES and NQ markets are not as perfect as the one for TF, in all cases we can see a steady rise, a sufficient number of trades, and a quick recovery from all drawdowns.

Creating robust strategies for TF market is really not that complicated. And if you use long-side only, the results will be even better. But then it is good to take some time and focus on short-biased strategies as well to have balanced number of long and short strategies in your portfolio.

You can learn how to build similar strategies here.

Merry Christmas and Happy Holidays,

Tomas

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