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Interesting results, especially the part about 6R having the same win rate as 4R. It seems like the probabilities would be against this happening unless the sample size was too small.
I find that reaching multiples of R drops off dramatically with higher R. For example, 1R 60%, 2R 28%, 3R 12%, 4R 6%, etc. A system that reaches 6R 25% of the time would be a gold mine! Bear in mind that I do not consider it reasonable for a discretionary trader to hold a trade to 2R, for example, and let it come back to entry without taking some profit along the way. Therefore, I do not count some trades that do this and end up reaching higher multiples of R. Over 90% of my trades that reach 1R and come back to entry ultimately end up hitting my stop with no more favorable movement. I would go nuts watching a 2R trade come back to zero, so I would have to be trading mechanically and walk away to accomplish what you researched.
You're welcome - I was quite surprised at the results too.
The win rate for 2R was higher than expected. I did not think basing trades on breakouts would lead to that high a win rate and expected a number similar to yours. There seem to be certain times that were more conducive to better trends, and during certain periods, early morning trends (between 2 and 4 am) tended to be very profitable, i.e. over 50% win rate. However, this changed later on and suddenly none of those trades worked. A larger sample may lead to different results, and perhaps I was just lucky with the chosen period.
The 6R system is not really such a goldmine. It gives back a lot of profits and I have had 9 negative days in a row. Sure, average monthly profit was positive, but intra-month swings can be severe. One month the two longer terms systems were up around $4k each and they ended up at $1.5k and 1.8k each - bear in mind this was one of the better performing "systems" for that month.
Overall it was quite disappointing to see results are at best $2k a month using a single contract. Using a $20k account, that would imply risk of 2% per day and returns of 10% per month. Cutting risk to my preferred 0.5% per day, would lead to returns of 2.5% a month. These are also backtested numbers, so it would be wise to place a haircut on them and in that case, the results become even more disappointing. Guess these type of mechanical systems will struggle to beat a truly competent trader.
Nice work- would it be possible to plug in a second entry near puke point (say 5-10t away). This is going to blow your mind what happens to the $ gain!!!
I really like that idea one question though what would be your stop on both contracts? For now I am experimenting with same stop as the original but that makes me nervous bcoz now if I get stop out it will be twice the hole.
My interpretation of puke point is the original stop and I am basing my testing on that. For instance if I entered a position with a 20 tick stop, I am adding another trade halfway to that, i.e. it carries half the risk of the first contract for a total risk of 1.5R.
I am doing these tests manually so that I can compare how the trades work at different points so it might take another day. Preliminary results are very promising, but I know that the dataset has a period of chop coming up and this may change the results.
Completed testing now and I am ashamed to admit that my initial profit calculations had an incorrect formula that overstated the results. @Tap In - you were right to be skeptical of the results, they were significantly overstated.
In any case, I have redone the spreadsheets using adding in an easy way to test whether adding on retracements could work. Entries were determined by straddling price at 2am. I have not retested every single system I tried, since it takes quite a while and most of the results were not really that exciting. Trades were held until stops or targets were hit or until 16h00.
This time, the win% is more in line with what I would expect it to be. The best performing systems tend to be those that hold for 6R or more even if the win % was lower.
Since this evolved out of a discussion on pyramiding or averaging down vs a single contract, I will give a summary of the results of using a 20 tick stop and adding once the position has gone 10 ticks against it vs just trading a fixed number of contracts. Results are for the period 1 June 2016 to 31 August 2016 using the CL contract in Ninjatrader (thus I am not sure of how the contract is put together and whether or not it is a continuous contract). Spreadsheet is attached for those who are interested in reviewing the detail. Testing was done manually so there could be some errors, but if there are errors, the impact should be immaterial.
Results with averaging down at the following profit targets as follows:
40 tick target = -$7,715
80 tick target = -$10,655
120 tick target = -$6,915
16h00 exit = -$5,120
Results using just one contract with the following profit targets:
40 tick target = -$5,015
80 tick target = -$6,475
120 tick target = -$1,760
16h00 exit = -$2,250
All of the profit targets still yielded negative results, but averaging down yielded significantly worse results - taking stops on higher risk, when profits were not always realised on the bigger position just hurt returns significantly. At the same time, with the initial batch of "faulty" testing, pyramding as a trade works suffered from the same problem.
In view of these results, I think that trading multiple contracts is not as essential to trading success as I previously thought. Trading a fixed number of contracts could potentially lead to better results than adding to a position.Scaling out could smooth the equity curve, but the dip in profitability in 80 tick targets makes me unsure of how I would actually scale out.
@Tap In - Apologies if I side-tracked your journal a bit, but based on the previous discussions, I thought you would appreciate seeing these results.
Well, the idea was to identify a breakout with the hope that it would lead to a larger trend. I had used Donchian channels in some tests, VWAP straddles once price was within a reasonable range, VWAP crossovers and price straddles at specific times. These lead to easier back testing than trend lines and support and resistance lines, which is why I chose them.
As stated before, I did not test any counter-trend strategies as I found all of the indicators very unreliable in the past. Perhaps counter-trend strategies would benefit more from averaging down. I do not know - I merely investigated one aspect. I do think that the result should at the very least should raise the question of whether scaling in is that much more superior to trading a fixed number of contracts.
I would certainly expect those sort of standard indicators to perform as you found. I am also a scaling-in sceptic, but I have to be an agnostic until we can test it against a daily thesis, rather than arbitrary levels. And nope, as you said, that's not easy. Enough smart traders make it work to decide for themselves, but the rest of us still don't know if that's because scaling-in is inherently a good idea or because they just have good theses, although we do have our suspicions...