22 Aug Introducing The Slingshot Trading System
Introducing The Slingshot Trading System
August 22nd, 2018
As we talked about last week, I love talking about trading systems.
We’ll be doing a lot more of that starting in September.
To start it off this week, I want to introduce you to the Slingshot.
The Slingshot is the first robot I ever built. I got deeply interested in trading with robots in 2012, and the Slingshot was my first attempt.
I had good intentions, but I also went a little overboard. You’ll see what I mean shortly.
First, the philosophy behind it.
The Slingshot is based on the fundamental principle of “fair value”. No matter how crazy things get in the market, at some point everything returns to the mean. And, once it does, it needs to go somewhere–because nothing stays still forever.
So we wait for price to come back to fair value, and then we take a trade as price moves away from equilibrium. Every big move in the history of the world has occurred from a move away from fair value.
Some moves stall out and come right back to the mean. Others travel a little farther. And some move very aggressively.
The idea is that we’ll get in there at the beginning and ride it no matter what. Yes, a number of trades will stop out but the big wins will more than make up for it.
Seems like a decent plan.
The questions are: 1) What are we using as fair value? 2) How are we using the breakout? 3) How are we entering? 4) What timeframe are we using?
For fair value, we use the 800 Simple Moving Average (SMA). This concept was taught to me by Rob Booker and it’s been a part of me ever since.
For the breakout, we’re using the Bossilator concept, which also is the invention of Mr. Booker. The Bossilator concept uses statistics to anticipate a move back to fair value. In other words, if price hasn’t touched the 800 SMA in a long time, then it’s due for a move back. The Bossilator can also be used for breakouts. If price has just recently touched the 800 SMA (fair value), then a breakout is probably eminent (for more information on Rob’s systems, you can go here).
We’re using the latter concept for the Slingshot.
After price hits the 800 SMA, we’re looking to get in and ride a breakout in the direction of the trend. But only after price has hit the 800 SMA. If it’s been away from fair value too long then it will probably reverse, so we’re not interested.
Next, we need an entry method.
I went all out on this one.
I first used Bollinger Bands because I like how price ping-pongs back and forth between the upper and lower bands. Then I added Stochastics…because I like it (?). Then I wanted a trendline break, but my programmer couldn’t program a trendline break at that time. So I used the PSAR indicator to simulate a break of a trendline. Very thorough!
For timeframe, I wanted to daytrade, so I used a 15M chart because that’s my favorite.
Last, I wanted lots of trades so I used many different Forex currency pairs. How I picked the ones I ended up with has been lost in the fog of history.
It took me many weeks to get this built and it cost me quite a bit of money. That’s what happens when you keep adding on more and more bright ideas.
I traded it for a while, but I eventually stopped. I’ll tell you why in the YouTube video tomorrow. But I’ve been tracking the results every month since 2012. Here’s how it’s done.
Trading a portfolio of six currency pairs from May 2012 to now (August 2018), the Slingshot system returned 117.3% on a hypothetical $10,000 account. The maximum drawdown was 24.1%.
The market, during the same time period, returned 111.2% and had a maximum drawdown of 24.6%.
Despite the person that built it, the Slingshot would have beaten the market by a small margin.
My takeaway? If you build a system on strong principles, even convoluted rules made by a novice won’t stop its productivity.
If you’re interested in hearing all the details on the Slingshot (entry method, portfolio composition, etc), watch the video on my YouTube channel tomorrow. Subscribe here.
Hope to see you there.