Long Term vs. Short Term

Although many traders seem to be looking for the GRQ (Get Rich Quick) strategy my approach is Long Term and is more concerned with the Reward to Risk ratio. We have to take on the Risk to enter the market but what size Reward are we targeting?

Basic common sense tells us that there are few good trading opportunities in any market, maybe only 1 or 2 great trades a year exist in any market. Sometimes a market can go sideways for 1 or 2 years before it breaks out of its range and starts pushing higher or lower with momentum (see GBPUSD Weekly).
So developing a strategy that trades every week or every day is not something I have been trying to do.
Instead I have been working on the Long Term approach where Trades with a very high Reward/Risk ratio are targeted. We can think of the ratio like this
????? / $300.
If we are to risk $300 how much do you think the reward should be? I cannot answer that question so I decided to let the Market answer that question for me.

I designed my (Take the Risk) Entry using a combination of Intra Day and Daily time frames but for the (Take the Profit) Exit I looked only for a breakdown of the Daily
Trend (the bigger Trend). This enables the capture of very large moves which is of course good for the overall Profit Factor (PF) but the prompt elimination of the Risk is also critical to obtaining a high PF. Of course there has to be some big market movement in the first place.

This approach may be of interest to some developers as 10/1 Reward/Risk ratios can easily be achieved and 100/1 ratios are not impossible either. Most strategies I have seen posted on here and other forums have PF’s of about 1 or 2 but with this long term approach I am able to obtain PF’s ten times greater. Maybe you can too.

I will attach an image of the Equity Curve from the MHT file generated by Tradestation whose platform and Historical data was used. I cannot attach the MHT file type so I will attach an Excel copy of the performance report and a Weekly image of the GBPUSD Spot market on which the back test report was performed.
The Spread has been factored into the report and also a 2 pip’s round turn for Slippage.
The back test was run over the complete set of historical data.


John

Its really pretty average.
Take out the 47K outlier trade in 2008 March and everything else is so so.

See spread sheet.

tech/a said:

Its really pretty average.
Take out the 47K outlier trade in 2008 March and everything else is so so.

See spread sheet.

Click to expand...

As someone who has developed a lot of mechanical GBPUSD systems tech, the guy deserves at least some props for producing a trend following curve which doesn't draw down on trends in this instrument, post 2008, no mean feat.

It doesn't look like you should necessarily be dissing his equity curve because of the outlier, as from what I can see this is a system that is only looking to enter potential outlier trades so it's quite picky compared to most triggers you might see. IMHO the returns are within "expected" performance for this kind of system, you might be expecting equity trend following results from FOREX which has much lower volatility in general.

from me John, would love to see some example trading entry rules of your overlay of intraday and daily data as I'm not exactly sure what this means (in this case) and can't really decipher the equity curve for clues. Can I make a guess that this is a channel breakout system at its core?

Ok
Just an observation.
Carry on.

Why report a system in equity? Why not report in points/pip or % moves that way you can actually see what type of moves your system is picking rather than the function of right data and large leverage.

Sinner,

The strategy uses 5 data time frames
3/15/30/60/Day.

When the Day trend is true then the 3/15/30/60 min time frames are checked for a good entry (let me know if you understand this) but once were in the market the strategy does not want to exit until the Day trend breaks down.
BUT the strategy is designed to get a Stop in place ahead of the entry price as soon as possible. The strategy will take the risk but once it has it looks to eliminate the risk a soon as possible. You probably realise that this cost’s the strategy some nice moves but the control and early elimination of the risk has worked well I think in keeping the DD down. With a very low DD you can then think about compounding.
I cannot tell you about the core entry logic except to say that it is Not any thing like CBO or 50%PB, it is just my own logic. I am not impressed with any of the Indicators given free with platforms or “trade entry set ups” you see promoted on fx websites. Where are you Sinner?

Trembling Hand

I can only produce the reports the Tradstation platform produces, the pips on the GBPUSD are worth $10 so if you divide the equity curve by 10 then that’s the total amount of pips the strategy obtained over the test period. If the GBPUSD is trading at 1.5000 then you need $1500 to enter the market.

There is a thread on the Tradestation forum that suggests the Sharp ratio calculated by the Tradestation platform is not correctly calculated but I have been to busy to research this and I am happy to just go by the Profit Factor / Pips and the DrawDown.

John
ps/ can I attach MHT files? Zip files?

AFTScouk said:

Sinner,

The strategy uses 5 data time frames
3/15/30/60/Day.

When the Day trend is true then the 3/15/30/60 min time frames are checked for a good entry (let me know if you understand this) but once were in the market the strategy does not want to exit until the Day trend breaks down.
BUT the strategy is designed to get a Stop in place ahead of the entry price as soon as possible. The strategy will take the risk but once it has it looks to eliminate the risk a soon as possible. You probably realise that this cost’s the strategy some nice moves but the control and early elimination of the risk has worked well I think in keeping the DD down. With a very low DD you can then think about compounding.
I cannot tell you about the core entry logic except to say that it is Not any thing like CBO or 50%PB, it is just my own logic. I am not impressed with any of the Indicators given free with platforms or “trade entry set ups” you see promoted on fx websites. Where are you Sinner?

Click to expand...

Thanks for the response. I understand what you're saying about intraday + daily now. No problems if you don't want to divulge the setup, I was more curious from the perspective of multiple time frames than anything.

I'm in Melbourne, for now.

Sinner,

i thought you might like to see this.

Well done Scout, thats pretty sweet!

AFTScouk said:

Sinner,

i thought you might like to see this.

Click to expand...

65 trades over 9 years with two trades accounting for $74735 of the total $91928 profit (~80%).

I don't know if this is something that is really good at holding on in a trend, or just got lucky.

skc said:

65 trades over 9 years with two trades accounting for $74735 of the total $91928 profit (~80%).

I don't know if this is something that is really good at holding on in a trend, or just got lucky.

Click to expand...

I'm assuming this is just one pair and it would be traded on a few?

Also, would this system perform similar on other pairs? Isn't this a sign that the system is robust?


CanOz

CanOz said:

I'm assuming this is just one pair and it would be traded on a few?

Also, would this system perform similar on other pairs? Isn't this a sign that the system is robust?


CanOz

Click to expand...

Robust = change a few things around the fringe and performance remains largely the same. With this system the performance changes dramatically with the removal of 2 trades (out of total of 65). So not what I consider robust.

However, if the system can somehow demonstrate that it can hit outliers at a 3% rate over many more trades (say a few hundred), then one can more confidently consider it as being capable of landing those moves .

Ive always been an advocate for putting yourself in
the front of opportunity and getting collected by the train.

But with 65 trades and only 1 train caught I question the
the system.

tech/a said:

Ive always been an advocate for putting yourself in
the front of opportunity and getting collected by the train.

But with 65 trades and only 1 train caught I question the
the system.

Click to expand...

I thought it was too high! The "train" had a profit of $50k while the average stop loss was $375.

How many 133R trades can one expect in their trading career?

skc said:

I thought it was too high! The "train" had a profit of $50k while the average stop loss was $375.

How many 133R trades can one expect in their trading career?

Click to expand...

Let's keep in mind that this is the design of the system, to catch outliers....more data is needed in my view. If this system can do this over a number of instruments and a long history, then it's has some merit.

CanOz