Greed is Good?

Greed is Good?

July 28, 2023

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This week we’re looking at interesting dilemmas.

Our first one was a great strategy that suddenly turned sour. The second was a good strategy that suddenly turned great.

This dilemma is about being greedy.

If our strategy is capable of making more money, should we do it?

Or should we stay in our lane?

Here’s the problem. And for this example, we’ll use the Consecutive Ups strategy from the last Newsletter.

Here’s that strategy once again:

ES.D 5-Minute Consecutive Ups

  • Start time: Between 10:20 am ET and 3 pm ET
  • Long Only entry: 3 consecutive positive bars
  • Filter: Must be above the 50-bar SMA
  • Profit: $750 per contract
  • Stop: $800 per contract
  • Exit: At end of the day if target or stop not hit

And here is the hypothetical Performance Report from 2007-2023 trading 1 contract each time:

Not bad. It’s a decent amount of hypothetical profit with a decent equity curve:

But do you want a tip for making a Futures system more profitable?

Trade it for 24 hours instead of trading the day session.

Here’s what happens to this system when we remove the silly constraints:

That’s almost 50% more profit if we don’t close out at the end of each day. Greed is good!

Well, greed is actually a dilemma.

On one hand, look at the most recent years if we don’t close at end of day:

On the other hand, look at 2007-2009:

Ouch. The drawdowns have increased dramatically.

I’m not sure I know any traders that could make it through that stretch.

But that’s ancient history! Look at what it’s done lately! It’s made so much more!

True, but it’s not sustainable. Being greedy creates too much drawdown. It can’t be traded long-term.

It’s a dilemma.

There’s nothing wrong with making more money.

But the best strategy is the one we can actually trade.

And that almost always means the one with less drawdown.

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.