A Crash-Proof System?

Aug. 7, 2024

The market has been tanking hard lately, and of course it has.

“Fair Value” on the SPY is way down around $450 while current price is still above $500 (even with the crashes):

There appears to be a lot more crashes in our future.

Still, that doesn’t stop traders from freaking out.

(Even diamond-handed index funders don’t behave well when the Nikkei posts its worst day ever and the U.S. market goes deeply in the red again).

It would be nice to have a system that behaves well during crashes.

And by “behaving well”, I mean not losing. Not losing on crash days feels very good.

So here’s a Futures system that should do okay when the market is not.

No surprise. It’s a Bollinger Band™ system.

Here are the details for the 30M E-Mini BB Breakout System (ES.D):

• Long Only Entry: When price closes above the Upper Band (20 length, 2.2 st dev)
• Stop Loss: $1,000 per contract
• Target: $900 per contract

What do you think? Will this keep us out of crashes?

Here’s a chart for this system during the big drops last Friday and this past Monday:

Not only did it NOT trade during the big down days, it actually managed to sneak in a winning trade.

And did it work during our most recent Bear Market?

Yes, it worked very well in 2022.

Granted, it’s slightly down for this year due to some sudden market swoons, but break-even isn’t terrible–especially after two hypothetically very profitable years.

In our next Newsletter, we’ll go back and see how this strategy did during other Bear Markets.

And we’ll see what happens when we compound.

Talk to you soon.

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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.

HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.