SCOTT WELSH TRADING BLOG

A Shocking Way To Make 50% In One Trade

A Shocking Way To Make 50% In One Trade

Apr. 17, 2019

If you had to guess, what style of trading could make a 50% return on a single trade?

Would you guess a complicated system that uses Fibonacci projections on high-flying IBD stocks?

Maybe an arcane options straddle with hard-to-compute deltas?

A Forex system using 5th wave entries with 400:1 leverage from a small broker overseas?

That is what I would’ve thought.

But here’s what I wouldn’t have guessed: A boring trend following system.

A few days ago, I was listening to an interview of a few famous trend following managers. Offhandedly, they mentioned something about a variation of the Golden Cross. They mentioned that some fund managers’ systems use a 50/250 moving average cross as a means to follow the trend.

Of course, the “real” Golden Cross uses a 50/250 cross, so I thought that was interesting. But what difference could that really make?

So, for fun, I fired up my moving average cross robot and plugged in 50/250 with a ridiculous profit target of 1,000 pips.

Now, real trend followers wouldn’t think 1,000 pips is ridiculous at all. Real trend followers would probably go for more than that.

But it seemed ridiculous to me. I expected the results to be boring and maybe a waste of time.

I was shocked.

Here are the details:

  • System: The 50/250 Golden Cross
  • Philosophy Behind It: Trend following is the most robust trading system of all time, and trend following is done famously by trading breakouts, or, in this case, using a basic moving average cross
  • Need Special Indicators? No, just 2 simply moving averages
  • Chart: Daily
  • Instrument: Forex EURUSD
  • Long or Short? Both
  • Long Entry: 1) The 50 SMA must close above the 250 SMA; 2) Enter at Open of the next bar
  • Short Entry: 1) The 50 SMA must close below the 250 SMA; 2) Enter at Open of the next bar
  • Long Stop Loss: 530 pips
  • Long Take Profit: 1,000 pips
  • Short Stop Loss: 160 pips
  • Short Take Profit: 1,000 pips
  • Long Move to Break-Even: after 600 pips of profit
  • Short Move to Break-Even: after 550 pips of profit
  • Trade size: 1.0 lots
  • Hypothetical Profit: $64,846 (no compounding)
  • Hypothetical Max Drawdown: $9,871
  • Hypothetical account size: $20,000
  • Test Period: 2003-2019
  • Number of Trades: 14

Here’s the Report (hopefully you can see it on mobile devices):

Are you surprised? Keep in mind this is a basic system. Trend following has been researched back hundreds of years. It’s not a gimmick.

I did do a bit of testing, though. If you notice, there is a different stoploss for Longs and Shorts. That might make some traders angry but the Long side of the market is not the same as the Short side of the market. Treating them the same has proven to be mathematically unwise.

And I barely tested a break-even level. I started with 500 pip of profit in mind and barely budged from that number.

But that’s all I did. I wanted a $10,000 trade and looked at how much space I needed to give to make $10k. Those stoplosses worked great. Others would work, as well.

Of course, that’s not a lot of trades. What should we expect, though? We’re going for massive wins (the trend following mantra) and we need time to get there. We’re not going to trade a lot because we’ll be in some profitable trades for quite some time.

Last, the drawdown was almost $10,000. So we’d need at least a $20,000 account to trade it at this size.

But we’re using a time-tested, philosophically sensible system that’s been around for decades, and it’s possible to make 50% in a single trade.

If we’re patient enough to let the winners run all the way to the finish line.

This research blew my mind. I’m curious to see if this system works on something else.

We’ll find out this week.

Talk 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.