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.
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.
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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