A Sneaky Way to Use This Strategy

A Sneaky Way to Use This Strategy

Feb. 9, 2024

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In our last Newsletter, we talked about the difference between using dollar targets and ATR targets.

The takeaway was that ATR targets/stops work better on volatile instruments.

No surprise there.

But does that mean we can’t use targets that contract and expand on seemingly less volatile instruments?

Remember, this is what the NQ.D 10-minute Buy Monday system has hypothetically done since 2018 on a sample $25k account trading 1 contract each time (via Portfolio Architect):

That’s almost a 500% hypothetical return while the market has only returned 99% over the same period.

But the Nasdaq wasn’t always that great. It was pretty pedestrian before 2017.

And lower-volatility instruments can still do well with an ATR stop/target if the system we’re looking at thrives on a trade running as far as possible (within constraints, of course).

At least, I think so.

Let’s take a look.

Here’s the Dow E-Mini (@YM.D) using the same system with a negative reward-to-risk from 2018-2024 trading 1 contract each time:

And here’s the Curve:

It’s not as prolific as the Nasdaq but it still hypothetically beats the market with no compounding.

And it still has a 90% win rate.

Here’s the Curve since 2002:

Not bad but not as great as NQ. If we compounded, though, it looks like we could still beat the market by a wide margin.

So, what have we learned?

We’ve confirmed that an ATR target/stop is best used on instruments with large average true ranges.

And one more thing.

Because of the high win rate, I was curious if we could use options with a strategy like this. So I took the signal last Monday using an option with a fairly short expiration and exited the option when the robot said we should be out.

I was a chicken so I used a simulated account–but I made 18% in one day.

Interesting.

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.