05 Oct If It Works in 2022, Is It Robust?
If It Works in 2022, Is It Robust?
Oct. 5, 2022
If your trading strategy is working this year, that matters.
That matters a lot.
Because it means you don’t have a 2020 app trader strategy. App traders have oddly fascinating reddit groups but they don’t have a strategy.
If you’re not crashing and burning this year buying dips, that is an extremely good sign.
That aside, what does it mean to make money in 2022? It means that a strategy is probably robust.
This year has seen violent reversals, complete loss of volatility followed by extreme volatility, and steamroller trends. It’s had everything.
And if a market environment has everything, guess what that means? It means that a strategy trader has seen many situations where his/her strategy doesn’t work.
Losing stretches are a guarantee in a year like 2022.
But if a strategy took the inevitable losses and then bounced back to be profitable overall, that’s very positive.
I’d say if a strategy works in 2022, it has a high chance of working far into the future. Because it’s survived many different regimes.
Let’s take a look.
We’ve been talking quite a bit about a long-term breakout strategy on the GBPJPY the past two weeks. As I’ve said many times, the exact details are in this video. But, so we can discuss, here are the parameters:
- It’s long-term (4-hour chart). Long-term should survive the schizophrenic twists of 2022.
- It trades breakouts. Breakouts are eternal–even in crazy Bear Markets. If price breaks above/below a Bollinger Band™ (80 Length, 1/-1 std dev), we get in.
- It has a great reward to risk ratio. Targets are 450 pips Long and 425 pips Short. The stop is only 120 pips.
- It uses break-even, which helps with reversals. B/E is 75 pips.
- It only trades before 12 pm ET, saving it from traders going nuts during afternoon breaking news.
- It has a time exit of 240 bars Long and 110 bars Short. No reason to stay in a trade too long in this type of market.
Seeing all that, would you guess that it would work this year? My answer is yes. And we know it did. On a hypothetical $25k account, it would be up 17.7%.
But the question this week is: Does a strategy that works this year work well overall?
Well, despite all the possible pain, the last three years have given us a gift. The market of 2020 was outrageous and misleading. Then the market of 2021 was skittish, bullish, and secretly bearish. 2021 was the killer of breakouts. And then we have 2022.
If a strategy works in the past three years, we can reasonably assume that it will work for a long time. If it handled that mess, it can handle most messes.
How did this strategy perform from 2020-2022?
It’s produced hypothetical profit.
So, a strategy that worked in 2022 also did well in the very different environments of 2020 and 2021.
What are the chances it’s produced hypothetical profit since 2003?
And if we compound?
If we compound, we make a hypothetical annualized return of 29.77% per year from 2003-2022.
The precious S&P 500, if you include dividends, makes only 9% per year.
A strategy that works this year has a very good chance of being robust.
But that doesn’t mean it’s easy.
There are still problems ahead of us.
And we’ll talk about those in the next Newsletter.
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.