I don’t have any good news to report in this post.
I experimented with a mechanical system, but the results are disappointing. First, I tried entering using a moving average crossover system. Buy when the short term EMA crosses above the long term EMA by at least 1%, sell when it crosses below. Exit when the 2.5*ATR(14) trailing stop is breached at close.
Honestly, I do not remember the parameters I used for the moving averages, as I experimented with a few system and none resulted in any decent profitability. I also changed the trailing stop to 4*ATR(14), with no improvement in results.
Next, I switched back to a discretionary system and practiced on SWN again. I chose SWN because of the frustration I encountered previously. Once again, I am keen to find out if I can improve upon my previous results. Sadly, another whammy.
Here are the results:
| Date | Trade | Quantity | Entry | Indicator SL | Exit | Percentage Profit | Remarks |
| 19 Jul 10 | Sell | 1 | 37.0538 | 39.18 | 38.14 | -51.09% | |
| 15 Dec 10 | Sell | 1 | 34.9444 | 37.14 | 36.55 | -73.13% | |
| 26 Jan 11 | Buy | 1 | 39.4965 | 37.51 | 37.51 | -100.00% | |
| 26 Jul 12 | Buy | 1 | 32.6826 | 30.28 | 30.28 | -100.00% | |
| 1 Oct 12 | Buy | 1 | 35.32575 | 32.87 | 35.25 | -3.08% | |
| 13 Dec 12 | Sell | 1 | 33.1136 | 34.98 | 34.29 | -63.03% | |
| 6 Feb 14 | Buy | 1 | 42.9738 | 40.4 | 40.4 | -100.00% | |
| 14 Mar 14 | Buy | 1 | 43.36575 | 41.44 | 47.41 | 210.01% | Stop loss was based on a recent low |
| 18 Jul 14 | Sell | 1 | 40.98405 | 43.76 | 40.41 | 20.68% | |
| 27 Oct 14 | Sell | 1 | 31.1236 | 33.78 | 33.78 | -100.00% | |
| 31 Dec 14 | Sell | 1 | 26.97445 | 30.23 | 25.53 | 44.37% | |
| 15 Apr 15 | Buy | 1 | 25.6 | 23.91 | 27.34 | 102.96% | |
| 12 May 15 | Buy | 1 | 29.39625 | 27.12 | 27.74 | -72.76% | |
| 12 Jun 15 | Sell | 1 | 23.66 | 25.44 | 18.26 | 303.37% | |
| 23 Sep 15 | Sell | 1 | 14.21855 | 15.99 | 13.48 | 41.69% | |
| 12 Oct 15 | Sell | 1 | 12.62655 | 13.9 | 12.28 | 27.21% | |
| 4 Dec 15 | Sell | 1 | 8.05 | 9.46 | 5.87 | 154.61% | |
| 28 Jan 16 | Buy | 1 | 9.57765 | 7.67 | 7.67 | -100.00% | |
| 22 Apr 16 | Buy | 1 | 11.18565 | 9.1 | 11.71 | 25.14% | |
| 2 Jun 16 | Buy | 1 | 14.2308 | 11.58 | 13.15 | -40.77% | |
| 24 Oct 16 | Sell | 1 | 11.49225 | 13.02 | 10.75 | 48.58% | |
| 19 Jan 17 | Sell | 1 | 9.5321 | 10.41 | 7.89 | 187.05% | |
| 5 Apr 17 | Buy | 1 | 8.75355 | 7.55 | 8.1 | -54.30% | |
| 16 May 17 | Sell | 1 | 7.21375 | 7.81 | 6.43 | 131.45% | Stop loss was based on bar high |
| 15 Jun 17 | Sell | 1 | 6.01 | 6.47 | 6.18 | -36.96% | Stop loss was based on a recent high |
| 3 Aug 17 | Sell | 1 | 5.3332 | 6.29 | 5.52 | -19.52% | |
| 20 Sep 17 | Buy | 1 | 6.09 | 5.43 | 5.93 | -24.24% | |
| 24 Oct 17 | Sell | 1 | 5.10435 | 5.72 | 5.55 | -72.39% | |
| 10 Nov 17 | Buy | 1 | 6.68325 | 5.68 | 6.09 | -59.13% | |
| 15 Dec 17 | Sell | 1 | 5.2138 | 5.89 | 5.46 | -36.41% | |
| 9 Jul 18 | Buy | 1 | 5.52 | 5.19 | 5.19 | -100.00% | |
| 30 Jan 19 | Buy | 1 | 4.5627 | 4.29 | 4.29 | -100.00% | |
| 22 Apr 19 | Sell | 1 | 4.10935 | 4.72 | 4.12 | -1.74% | |
| 20 May 19 | Sell | 1 | 3.87055 | 4.2 | 1.95 | 582.96% | |
| 19 Nov 19 | Sell | 1 | 1.9303 | 2.22 | 2.05 | -41.32% | |
| 30 Jan 20 | Sell | 1 | 1.52 | 1.85 | 1.75 | -69.70% | |
| 16 Mar 20 | Buy | 1 | 1.93965 | 1.06 | 1.67 | -30.65% | |
| 8 Jun 20 | Buy | 1 | 3.46725 | 2.96 | 2.96 | -100.00% | |
| 17 Nov 20 | Buy | 1 | 3.0753 | 2.42 | 2.89 | -28.28% | |
| 13 Jan 21 | Buy | 1 | 3.6984 | 3 | 3.44 | -37.00% | |
| 9 Feb 21 | Buy | 1 | 4.45215 | 3.89 | 3.89 | -100.00% | |
| 16 Aug 21 | Sell | 1 | 4.33 | 4.92 | 4.56 | -38.98% | |
| 24 Mar 22 | Buy | 1 | 5.8491 | 5.09 | 7.79 | 255.68% | |
| 8 Jun 22 | Buy | 1 | 9.81885 | 8.94 | 8.94 | -100.00% | |
| 26 Jul 22 | Buy | 1 | 7.41 | 6.07 | 6.49 | -68.66% | |
| 23 Sep 22 | Sell | 1 | 6.44 | 7.61 | 6.55 | -9.40% | |
| 5 Dec 22 | Sell | 1 | 6.35 | 7.26 | 6 | 38.46% | |
| 17 Feb 23 | Sell | 1 | 5.0148 | 5.68 | 5.56 | -81.96% | |
| 24 Mar 23 | Sell | 1 | 4.63 | 5.02 | 5.02 | -100.00% | |
| 19 May 23 | Buy | 1 | 5.4873 | 4.67 | 4.97 | -63.29% | |
| 16 Jun 23 | Buy | 1 | 5.4672 | 4.87 | 5.89 | 70.80% | |
| 19 Jul 23 | Buy | 1 | 6.34155 | 5.9 | 6.4 | 13.24% | |
| 17 Oct 23 | Buy | 1 | 6.8541 | 6.26 | 6.74 | -19.21% |
Profitability
Using 5% risk per trade with an initial balance of $100,000 and strategy 4 for position sizing (ignoring days to exit), I end up with a net loss. The final balance is $98,514.13 with a maximum drawdown of -17.76%.
I also tried using a different trailing stop (using 2.5*ATR(14)), but the results are worse. This exit strategy resulted in a final balance of $80,975.50, with a maximum drawdown of -21.91%.
Contrast this with my previous practice results, using the same position sizing strategy (i.e., strategy 4 ignoring days to exit), I ended with a final balance of $114,660.12 with a maximum drawdown of -27.73%.
Analysis
This new practice session has a lower drawdown but also a lower final balance. This makes sense as being more stringent with my entries (I reduced the number of trades from 133 to 53) resulted in missing some good trends.
Missing a good trade does seem to be very costly in trend following. I’m reminded of how the turtles have a very simple and mechanical entry criteria, suggesting that entry is not as important as catching a good trend and making full use of it.
So, what should I do next? Try to figure out a why to pyramid so as to make the most of a good trend?
I would really love to come up with a mechanical system, as trading a discretionary system is so stressful. I’ve been experiencing gastric issues quite frequently since Dec last year. Is this due to the new caterer or because of the stress?
I’m tempted to give up, but because I have no other alternative, I cannot give up.
Side Note
Where I believe the edge is?
- My exit strategy allows me to exit fast when wrong and normally without taking a full loss. It also allows me, in some cases, to ride a long trend.
- Trading a pullback allows me to enter at a better price, vs a simple crossover strategy where price may have gone too far.
Is it possible to develop a mechanical system that trades pullbacks?
Leave a Reply