Building a System

Building a Portfolio

June 26, 2023

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I’ve been lucky enough to coach a number of different teams, and I watched several teams go from worst to first.

And here’s a surefire secret to going from nowhere to somewhere.

Find one superstar.

There are a lot of other things that can cause change, but sometimes those other little things can take a long time–or not work at all.

What definitely turns things around in a hurry is one crucial player.

When you have a superstar at the top of the lineup, everything gets easier. When your top player wins 75% or more of his/her matches, everything changes. The rest of the lineup goes into the match counting on a guaranteed win. The positive peer pressure of a top player makes everyone increase their expectations. And recruiting more stars becomes much, much easier.

Once you have a star foundation, everything builds quickly.

It’s the same for systems.

Once you have a star system on a great-looking chart, things can start falling into place right away.

Where does that star come from?

It can come from data-mining. You could get expensive software and runs millions of tests over dozens of hours until you force the data to come up with a solution that looks good.

Of course, if you make it look too good, it won’t work in the future.

Overall, that’s a tough path. Doable, but tough.

Another way is to have a superstar idea.

An idea that’s timeless, makes sense, and has worked for other people for a very long time.

What’s such an idea?

How about the Long bias in the U.S. stock market?

While there’s no guarantee the market will always go up, when comparing to other stock markets all over the world, the U.S. market tends to head upward since the 1920s.

We can build on that.

In last week’s Newsletters, we talked about a Bollinger Band™ system on the ES (S&P 500) Futures contract. That simple system used many of the superstar building blocks.

We know trend following/breakouts are eternal. We know the S&P 500 tends to go up. And we know volatility bands are a trigger that makes sense and works on many different instruments.

Here’s the Equity Curve on that system from the last 5 years:

Not perfect, of course, but good. Good enough to make a significant chunk of money.

And we can use that to try to find another star.

To do so, let’s bring in RSI. If we use the same foundation, can we add something to our team?

I kept the same profit target and stop from last week. All I changed was the indicator. Here are the details:

RSI Breakout 30M ES.D System

Long Only: When price closes into Overbought, enter at the open of the next bar (Length 8, Overbought 56)

Target: $900 per contract

Stop: $800 per contract

Here are some recent trades:

And here’s the Equity Curve from the past 5 years:

It’s not quite as good as the Bollinger Band™ system, but it’s good. And it was really good in a bull market like 2020.

And here’s the thing: once you have one superstar, you don’t need several more. You may not even need one more. Once you have an idea/chart that works, the next step is to find a bunch of complementary role players.

And this is also when you coach/adjust the role players into making a great team.

So that’s what we’ll do in the upcoming Newsletters. We’ll take a look at this RSI chart, and see if a few tweaks to it can make our overall team better.

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.