I’ve created this topic to answer questions that people have asked about the system.
Stops – Every trade has a stop. The system uses stops outside of extended market ranges, giving the trade’s space for the algo’s edge to play out. Based on years of historical testing, stops are a double edged sword. Most of the time having a “close” stop will work against you, stopping you out of a trade, then due to the mean reverting nature of markets, returning to profit. On the flip side, stops will save you in shock moves that inevitably hit markets now and again. This type of market action is very rare, but its when you need a stop the most.
The system uses stops in a way that balances these two ideas, placing a stop far enough to not get whipped out of trades, but will provide some protection against a extreme market move.
Put simply, for this system, close stops reduces overall performance.
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I’ve had a few emails regarding stops for the trading system, so will provide a bit more info below>
The stop size changes in line with the range of the market. For example, as of today, as the market is trading larger ranges the stop is proportionally larger than when the es topped (for example) on 21st May, where the range of the market then was lower.
Over the last 20 trades the stop on average has been about 50 ES points away for each signal/contract. This is less than 5% of equity per signal. The average drawdown has been about 6 ES points per signal, so no signal has come close to being stopped out. The system will trade 1 contract per signal and has had more than 1 signal active on a few occasions.
Is this the start of a bear market?
No one know the answer to this, but there are technical conditions in this current market that were present in 2000 and 2007, the start of the two most recent bear markets. These conditions were also present in 2010 and 2011 briefly, but the market found a bottom and the bull market continued.
The B48 system will adapt to market conditions and will trade a trend following system that was traded in these bear markets. Below is an equity curve of this strategy.
This is for a single contract and the signals did a good job of capturing the downside gains. This signal has taken 2 trades so far this week.
The system will trade YM (dow mini futures) for any bear market signals. The trades will have closer stops and let winners ride.
Again, as above, this is no a prediction of future direction, but if a bear market does happen the system will adapt and have the tools to capture the downside trends.
Any more questions please email.
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Someone asked why was the system placing long and short trades. The long trades are the normal system trades. These have a very high win rate, most of the time.
The short trades are as the above post, it’s a bear market strategy that I only trade when certain market condition are present. This strategy follows trend following rules, which means a lower win rate (less than 50%), but the wins are larger than the losers. Trend following strategies typically get whipsawed a lot and can give back profits, but will capture a large trend move when it occurs.
Best described by Trend Following expert Ed Seykota! https://www.youtube.com/watch?v=LiE1VgWdcQM
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have you changed way system trades? seems much smoother now
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The system is back to trading similar methods prior to the August sell off, so should be higher win trades.
The “bear market” signals have not occurred since the start of October, when the market rallied. Similar to 2010 and 2011, see previous post.
Just a heads up, its possible the system will start trading the swing short signals in the next 5-10 days
reminder this was the original forum post. Since then the system took some signals over the summer 15, but the market rallied at the start of Oct and no more signals were generated.
"Is this the start of a bear market?
No one know the answer to this, but there are technical conditions in this current market that were present in 2000 and 2007, the start of the two most recent bear markets. These conditions were also present in 2010 and 2011 briefly, but the market found a bottom and the bull market continued.
The B48 system will adapt to market conditions and will trade a trend following system that was traded in these bear markets. Below is an equity curve of this strategy.
The system will trade YM (dow mini futures) for any bear market signals. The trades will have closer stops and let winners ride.
Again, as above, this is no a prediction of future direction, but if a bear market does happen the system will adapt and have the tools to capture the downside trends.
Any more questions please email."
Getting a few questions why is the system long and short. The short signals relate to the “bear market strategy”, see above (these will always be dow futures, YM). These are trend following in nature and the core short position will have a trailing stop. The regular signals will trade ES. These will have stops and targets. Sometimes when hedged and the spread is in profit it will close out all sides. There will be some scalps, long and short. Regards
As market volume is very high, the system risk unit will increase to 1 contract per $15,000 of equity (previously 10k) . A hedged position (long es, short ym) is 0 units. Stops and targets will widen and positions may get more heat than normal. Regards
End of quarter system update.
The system has held up reasonably well in some dramatic market conditions for the first quarter of 2016. Jan and Feb saw a big pickup in volatility, which make for good trading conditions. We have since seen the volatility squeezed and the market completely reversed the 10% drawdown by the end of March, which is the first time this has ever happened for the S&P in the same quarter. The system did a good job of recognising this market pattern of a slow grinding up trend in March and avoided any short positions. The market is now at an interesting point, with no clear long term trend. We could be in for a resumption of the long term bull move or may be in the process of putting in a monthly lower high. This technical clouding has caused a lack of activity in the last 2 weeks and the system will continue to trade in a conservative manner until better trading edges become available. Regards
The system now has over $70,000 in equity but most of the trades seem to be of 1 or 2 contracts. According to the defined parameters should the trade sizes not be 5-7 contracts? How would one select the scaling factor and max contracts when following this strategy?
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I had the same thought. I have been looking at this and it seems it could be traded with smaller equity which would also boost the return percentage. This could be a better system than it first appears if the stated limits for contracts held was 2 or 3.
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It’s nice to see a system developer who is playing it conservatively. The returns are sneaky good and it’s only a matter of time before the system gets “discovered”. Personally, I have found the system trades nicely with 200-300% scaling with $75K equity. Perhaps the most impressive thing was the way the system learned from the August 2015 bear market and handled the January 2016 bear market with ease.
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Hi. The defined parameters are the maximum allowed rather than a mandatory amount. It’s really there to offer peace of mind for potential subscribers that the system has rules in place for trade position size. There have been occasions in the system history here where contract size has gone above 1-2 contracts, so my advice would be to look at the trade history and see how this would impact your scaling factor and the max contracts you wish to trade. The live trades have been pretty much in line with the system history in terms of exposure and historic draw down,
Thanks for the comments.
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Dear all. The ES continues to be range bound and there have been few high probability trades for the last few weeks. This will change no doubt at some point, but until then the system will continue to trade conservatively. Regards
I’m reviewing your statistics and trades for the first time. C2 records a trade on 8/20/15 with a $7,228 loss.
I’m guessing that would be a 36% drawdown if one contract were traded with $10,000 equity, depending on the specific exit of the single contract (or, 72% if you took both contracts in a $10,000 account).
Was that a normal system trade, and is your system still operating with the same design parameters, or have you made any changes?
Also, (apologies if you’ve already answered this somewhere else) why do you not trade your own system?
Hi. The system had approx 69k of equity,so the drawdown was just over 10% for the trades you are referring to. It is recommended this system is traded to scale. I do trade the signals. The trading style evolves and adapts to market conditions
