08 Nov A Trustworthy Strategy?
A Trustworthy Strategy?
Nov. 8, 2023
Subscribe to my YouTube Channel HERE.
The story matters.
When it comes to systems, the math obviously is super important.
But when it comes to long-term success, I’ve learned one thing:
The story matters more.
Take the story of the Dow Jones, for example. We have data on the Dow going back to the 1800s.
We can see that, over many decades, the United States stock market has a Long bias. It goes up over time.
And that story has made more people rich than another other system in the world.
Because believing in it keeps them in the game.
Are we only limited to trading the Dow then? Obviously not.
The Dow is a weird, arbitrary group of stocks that definitely aren’t indicative of the entire world of companies. By expanding it out to say, 500 companies, we get the same provable upward bias while getting much better diversification.
It doesn’t matter that we don’t have 150 years of S&P 500 data. The Dow and the S&P are basically the same thing.
Logically, both are equally trustworthy.
So, if we use a system based on the S&P 500, we should be good. That’s why the SPY and VOO are so beloved.
For our system, though, we’ll be greedy and seek more leverage. We’ll use the ES Futures contract instead.
Same trust level, more potential profit.
And we’ll use a system to get stops and targets involved. Systems almost always outperform buy-and-hold.
Does that pass the trustworthiness test?
If we have a system based on the S&P 500 (which is a better version of the Dow), we only go Long (we’ve seen the 100-years chart), and we use a system for more profit and less risk, are we okay?
In short, is this a system we could trade for ten years or more with no problems whatsoever? Buy-and-holders brag about holding for 20-30 years.
Can we find a system to use for just ten?
Here are the basic rules. We’ve discussed this before and you can see all the details here.
RSI 5-Minute ES System
- Use RTH (Regular Trading Hours). For me, that means using the ES.D contract
- 5-minute chart
- RSI with default length setting
- Buy when price goes to Overbought
- Use a dollar amount for profit and exit
- Exit at the end of the day
- (Elite Members will be receiving the code for this in 2024 at the latest; a trader could also code it himself/herself from the rules in the video.)
Is this a setup that tells a good story?
One way to answer that is to look at the past few years. A bullish, Long-only system should:
- Thrive in 2020 and 2021,
- Suffer in 2022’s Bear Market,
- And do who-knows-what in 2023.
After all, isn’t that exactly what SPY did?
And the Dow?
So, how did our based-on-a-trustworthy-story system do in the same time period?
It was up in 2020, way up in 2021, up slightly in 2022 (whoa), and up big in 2023.
Since 2020, the SPY would have turned a hypothetical $10k into about $14k:
The Dow would have returned about half that.
Our system would’ve hypothetically turned $10k into about $30k (trading 1 contract). Compounding would’ve made much more.
But what if we go back a few more years?
It still seems to do well.
Bottom line: Is it as trustworthy as buying-and-holding an index?
It’s Long-Only. It buys Long breakouts. It doesn’t hold overnight. It’s survived many different environments.
The story behind it seems to be sound.
Or at least close enough to the most trustworthy story we know.
In our next Newsletter, we’ll try to find another trustable system.
Talk to you soon.
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.