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ES Trading System - how to improve it?


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ES Trading System - how to improve it?

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  #1 (permalink)
AliMax
Miri, Sarawak, Malaysia
 
 
Posts: 2 since Apr 2016
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All,
I am testing a very simple ES trading system. It is a swing trading system. Everyday at the close of the ES market 430pm, I will enter the market to make a trade. I have three choices: BUY, SELL or EXIT. So essentially I hold the ES overnight (~24 hrs). As this is a new system I am testing out, I haven not implemented any stop loss. I just use one simple criteria: If say today, the close of the CASH S&P500 is higher than all the previous 2-day, 4-day, and 8-day averages, then I will go short for the following day, and VICE VERSA. And if the closing CASH S&P 500 is within the range of the 3 averages, I will not trade the next day.

Using the historical data of the CASH S&P500 from JAN 2007 until 15 April 2016, I am surprised to find that this 'DUMMIE' system actually makes money over time! If I just trade 1 contract at a time, the margin requirement is US$5000 (TradeStation).

The attached picture is a comparison between the cash S&P and the gain of this "DUMMIE" system.


Over the course of the last 9.3 years, it gained 1970 pt. That's an average of more than 211 pts per year. If I have started with $5000 margin, my balance today will be $98547.55, that's a bloody good return on my money

But upon closer look I discovered that this system experience a huge drawdown between 2014 and 2015, the maximum drawdown is -339 pts and for one contract this represents about $16k, and "DUMMIE" was lucky that this didn't happen from the very beginning as the account would have been wiped out.

I extract a few more statistics from DUMMIE's performance:

No. of Trades: 2329
No. of winning trades: 941 (40%)
No. of losing trades: 892(38%)
No. of no trades: 496 (21%)
Largest winning trade: 104.13 (13/10/2008)
Largest losing trade: -79.92 (08/08/2011)
Max. Drawdown: -339.46
Annualized return: 38.5% from initial margin of $5000
Return over Max. drawdown: 21.5%

Average Winning Trade: 11.97826811
Average Losing Trade: -10.4266807

Obviously I am not comfortable with the high drawdown. Also the Win/Lose ratio is almost 1:1, I am pondering what I can do to improve this trading system. Any comments and Feedbacks will be very much appreciated.

Ali

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  #3 (permalink)
 choke35 
Germany
 
Experience: Intermediate
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Trading: ES, YM, 6E
 
Posts: 2,668 since Feb 2013
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AliMax View Post
All,
I am testing a very simple ES trading system. It is a swing trading system. Everyday at the close of the ES market 430pm, I will enter the market to make a trade. I have three choices: BUY, SELL or EXIT. So essentially I hold the ES overnight (~24 hrs). As this is a new system I am testing out, I haven not implemented any stop loss. I just use one simple criteria: If say today, the close of the CASH S&P500 is higher than all the previous 2-day, 4-day, and 8-day averages, then I will go short for the following day, and VICE VERSA. And if the closing CASH S&P 500 is within the range of the 3 averages, I will not trade the next day.

Using the historical data of the CASH S&P500 from JAN 2007 until 15 April 2016, I am surprised to find that this 'DUMMIE' system actually makes money over time! If I just trade 1 contract at a time, the margin requirement is US$5000 (TradeStation).

The attached picture is a comparison between the cash S&P and the gain of this "DUMMIE" system.


Over the course of the last 9.3 years, it gained 1970 pt. That's an average of more than 211 pts per year. If I have started with $5000 margin, my balance today will be $98547.55, that's a bloody good return on my money

But upon closer look I discovered that this system experience a huge drawdown between 2014 and 2015, the maximum drawdown is -339 pts and for one contract this represents about $16k, and "DUMMIE" was lucky that this didn't happen from the very beginning as the account would have been wiped out.

I extract a few more statistics from DUMMIE's performance:

No. of Trades: 2329
No. of winning trades: 941 (40%)
No. of losing trades: 892(38%)
No. of no trades: 496 (21%)
Largest winning trade: 104.13 (13/10/2008)
Largest losing trade: -79.92 (08/08/2011)
Max. Drawdown: -339.46
Annualized return: 38.5% from initial margin of $5000
Return over Max. drawdown: 21.5%

Average Winning Trade: 11.97826811
Average Losing Trade: -10.4266807

Obviously I am not comfortable with the high drawdown. Also the Win/Lose ratio is almost 1:1, I am pondering what I can do to improve this trading system. Any comments and Feedbacks will be very much appreciated.

Ali

Sorry to say, but a 9.x years system that gains less than 1p on avg per trade is worse than junk.
Or said more comfortably: Certainly not worth taking the risk of being in the market at all.

Since you didn't mention commissions nor slippage it could be even worse than that.

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  #4 (permalink)
AliMax
Miri, Sarawak, Malaysia
 
 
Posts: 2 since Apr 2016
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choke35 View Post
Sorry to say, but a 9.x years system that gains less than 1p on avg per trade is worse than junk.
Or said more comfortably: Certainly not worth taking the risk of being in the market at all.

Since you didn't mention commissions nor slippage it could be even worse than that.


I just re-run the system using the actual E-mini data from the same period. It's yielding even more gain! The net gain is now 2157!

I don't know how to quantify slippage. The system is not relying on stop loss. It place an order just before market closes. Commision is $2 per trade. And the total number of trades that incurred $2 was 3743 and this means the total commission would be $7486. This is not going to wipe out my account.

Ali.

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  #5 (permalink)
 choke35 
Germany
 
Experience: Intermediate
Platform: Other
Trading: ES, YM, 6E
 
Posts: 2,668 since Feb 2013
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AliMax View Post
I just re-run the system using the actual E-mini data from the same period. It's yielding even more gain! The net gain is now 2157!

I don't know how to quantify slippage. The system is not relying on stop loss. It place an order just before market closes. Commision is $2 per trade. And the total number of trades that incurred $2 was 3743 and this means the total commission would be $7486. This is not going to wipe out my account.

Ali.

2157p is still below 1p per trade if the number of trades remained in the range that you gave in your first post.
Think, no sensible trader would bet his/her money on that.

Before you go on probing single data points that don't make much sense, I'd suggest that you spend some time
on understanding (back)testing and system methodology. @kevinkdog 's threads, posts, book, and supplements
would be a good start imho.

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  #6 (permalink)
 forgiven 
Fletcher NC
 
Experience: Intermediate
Platform: nijia trader
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Trading: ym es
 
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if price closes above or below the R1 or S1 pivots there is a grater chance price will move in that direction in the globex. if your looking at stop placement ...in a strong trend price will stay on one side of the center line pivot. hope it helps

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  #7 (permalink)
 spectre2007 
New York, New York
 
Experience: Master
Platform: NinjaTrader
Trading: /ES
 
Posts: 16 since Feb 2017
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order flow spikes are:

10:30 am .. 13:30pm ...2:30am

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  #8 (permalink)
 trendisyourfriend 
Market Wizard
Quebec
 
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Platform: NinjaTrader wt Rancho Dinero's profiling tools
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forgiven View Post
if price closes above or below the R1 or S1 pivots there is a grater chance price will move in that direction in the globex. if your looking at stop placement ...in a strong trend price will stay on one side of the center line pivot. hope it helps

Gr'e'ater chance is not precise enough

https://www.linnsoft.com/comment/218

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 forgiven 
Fletcher NC
 
Experience: Intermediate
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Broker: A.M.P. I.Q. ....C.Q.G.
Trading: ym es
 
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trendisyourfriend View Post
Gr'e'ater chance is not precise enough

https://www.linnsoft.com/comment/218

that was a very good post. i used the software 5 years ago. i going to take another look . thanks

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 forgiven 
Fletcher NC
 
Experience: Intermediate
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trendisyourfriend View Post
Gr'e'ater chance is not precise enough

https://www.linnsoft.com/comment/218

are you using the pivot boss indicator package for investor RT or just what is already on the software...thanks

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 trendisyourfriend 
Market Wizard
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forgiven View Post
are you using the pivot boss indicator package for investor RT or just what is already on the software...thanks

I don't use pivots of any form in my trading and my platform is Ninja. Sorry.

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  #12 (permalink)
TraderEX
 
 
Posts: 96 since Sep 2018
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AliMax View Post
I just re-run the system using the actual E-mini data from the same period. It's yielding even more gain! The net gain is now 2157!

I don't know how to quantify slippage. The system is not relying on stop loss. It place an order just before market closes. Commision is $2 per trade. And the total number of trades that incurred $2 was 3743 and this means the total commission would be $7486. This is not going to wipe out my account.

Ali.

I am strictly the ES. The ES closes at 415 EST and and reopens at 430 until 500. Closed from 5-6 and GLOBEX opens at 6 pm EST. Slippage is rare for me in my 4 year experience with the ES. The ES just gobbles up anything in it's path.

Your formula is missing exchange fees. Currently 2.58 per round turn.

You may want to browse the TRADOVATE sight as I have found them to be among the quality firms. You may find better than $2 per trade there. Currently, the MOST they will charge you is 0.79 per side. Free platform and the standard data feed is $2 for top and 7 for depth. I am a scalper who operates in seconds and minutes for complete trades. I only use the $2 version. I've read and believe that the HFT's manipulate the DOM so I stay away from it. Things are tough enough with accurate information.

Unless you are a natural at this, it will take years as opposed to months to be savvy. I hope you are a natural, I wasn't. Over 10,000 hours of screen time developing my model.

Best of fortune to you-

EX

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