Building Around a Superstar

Building Around a Superstar

June 28, 2023

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This week we’re working on building a team/portfolio.

The first, big step was finding a superstar.

And for our portfolio, that superstar is one trading chart that is timeless and produces profit.

Once we know an idea will persistently produce profit of some measure, we can start building around that.

In our last Newsletter, we used the RSI indicator to build a trend following breakout strategy.

And we did it without changing any settings from our Bollinger Band™ system from the week before.

Now that we have a chart that shows profit, we can start tweaking that idea.

But we obviously need to be careful. Too much “coaching” of our system leads to overfitting and poor performance.

A little tweaking, though, is fine.

So we’ll start with the profit target.

As you probably know, indicators produce different types of explosions. Some indicators produce moves that are low percentage but huge once they work. Others produce consistent little wins.

We don’t know what our RSI system does for sure because we just cut-and-pasted the target and stop from our previous system.

Let’s dig a little deeper.

Currently, our target is $900 per contract on the E-Mini (ES). Does the RSI lead to big breakouts or tiny ones?

If we test for just the profit target over the past ten years, we get our answer.

RSI likes big targets.

Here’s the Curve with a $900 target:

And here’s the Report for the $900 target:

Now, with the tiniest bit of testing, we see that RSI wants a much bigger target: $2,800.

Here’s the Curve with the new, larger target:

And the new Report with a $2,800 target:

Over the past ten years, a bigger target produces much better results.

Would a different stoploss do the same?

We’ll take a look in the next Newsletter.

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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.