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ES Trading System - how to improve it?
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ES Trading System - how to improve it?

  #1 (permalink)
Trading Apprentice
Miri, Sarawak, Malaysia
 
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ES Trading System - how to improve it?

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.
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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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  #2 (permalink)
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  #3 (permalink)
Market Wizard
Germany
 
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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.
Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


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)
Trading Apprentice
Miri, Sarawak, Malaysia
 
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Favorite Futures: Emini ES, Crude CL
 
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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)
Market Wizard
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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)
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improvement

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)
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order flow spikes are:

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

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  #8 (permalink)
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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#comment-218

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  #9 (permalink)
Elite Member
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very good software


trendisyourfriend View Post
Gr'e'ater chance is not precise enough

https://www.linnsoft.com/comment/218#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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  #10 (permalink)
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pivot indicators



trendisyourfriend View Post
Gr'e'ater chance is not precise enough

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