Can We Talk About This E-Mini Chart for a Second?

April 18th, 2018

Everyone is skeptical about testing results.

And you should be.

Fake testing results are an easy scam.

“This system makes 100% per month! Here are the results! Buy now!”

And, of course, those claims are probably/definitely false.

I get all that.

But I need to talk to you about something.

A few weeks ago, I was researching the Heron system on long-term charts (specifically the Daily charts).

I was tinkering around with big profit targets and other wrinkles, and I was putting the Heron on different instruments (like individual stocks and Futures).

And I came across some settings on the E-Mini (futures contract @ES).

Like I said, I was looking at big profit targets. I was curious what a trader’s life would look like if one trade paid for a month or two of bills.

I also was playing around with big stoplosses because I wanted the trade to have time to get where it wanted to get.

So, for fun, I put a massive profit target and a too-big stoploss on @ES and tested it back to 2002.

Holy crapoly.

Here’s a Performance Report (based on a $10k account, trading only 1 contract each time, and trading costs built in):

https://www.screencast.com/t/N5kVoocTpS

A few things about this report.

This assumed no compounding. If we raised our trade size with profits, the returns would be much higher.

Now take a look at the Percent Profitable number. I’ll wait.

Ninety-six percent win rate!

That’s ridiculous. Any system with a win percentage that high is a scam.

Except, of course, systems that have high win percentages on long-term charts.

What’s Warren Buffet’s win percentage? Nearly 100%? What’s an Index Fund win percentage? 100%?

When you trade long-term charts, the win percentage can be high, especially if you’re a buy-and-hold type of trader. And if you have a massive stoploss, you’re basically buying-and-holding until you hit the target.

For example, this @ES chart only has 2 losing trades since 2002.

It naturally makes sense that the max drawdown would be high in this sort of system, and this system does have a 52% max drawdown (if you traded it on a $10,000 account).

[The Report shows a drawdown higher than that, but that’s not quite realistic. The chart only lost a max of one in a row, and that loss was $5,200. The next trade was a winner (with a little drawdown at the beginning), so it seems more logical to assume a 52% drawdown in real life. If you disagree, then consider max drawdown to be a little higher.]

If we just assume a 52% max drawdown, then that’s the same drawdown as an Index Fund and the returns on this chart (with no compounding) are about four times higher than the market.

So that’s four times better than the market for the same drawdown, and we get to win 96% of the time.

That’s crazy.

What are the takeaways?

One, I think we all need to respect the earning power of long-term charts. The mindset of most traders is that we have to be in there every day cranking out wins.

The truth is: a few trades a year can provide everything we need. And we need to seriously consider that.

A long-term trader’s life is way less stressful than a short-term trader’s life.

Two, maybe we don’t need to be afraid of high win percentages on long-term charts. We can win a lot if we’re thinking long-term.

Three, it might be a good idea to take whatever system you’re trading and move it out to longer timeframes.

On one hand, you can see if your system is robust. It should be profitable on a longer chart if the system is solid.

On the other hand, it might bring a whole new perspective.

The bottom line is that I’m not smart enough to trade this @ES chart.

Not yet.

It’s just an experiment at this point.

But you never know when I might get smarter.

[If you’re a Lifetime Member or a Heron Course member, email me if you want the settings to the @ES chart].