07 Nov The Joy and Pain of a 100% System
The Joy and Pain of a 100% System
November 7th, 2018
When we dream of trading, what do we dream of?
We dream of winning, right?
When I was starting out in trading, I never looked for systems that had losers. I’d look at a system, see some bad trades, and drop that system. I’d do this over and over again.
We all want systems that win. So is it possible?
And what’s the price to pay?
Up until now, I’ve never found a 100% system where we could take one trade and win every time. Most traders/educators would tell us that those types of systems don’t exist.
If someone tells you they win all their trades, he or she is a liar. At least, that’s what we were told.
It’s not true, though. There are 100% systems. We’ll talk about one today.
Through months of testing, I’ve learned that 100% systems aren’t possible unless you have an instrument that has a bias. In Forex, for example, I can’t find a 100% system because price can go either way at any time for as long as it wants.
But there are instruments that have biases. Stocks for one. Market indices for another.
That’s where I came across this chart on the ES. It wins all the time due to an upward bias. And, even crazier, it has a stoploss. I’ve never seen a chart that won every trade AND had a stoploss.
Here are the system details:
- System: Trying to Win 100% With a Stoploss
- Philosophy Behind It: If we pick something with a bias, we can make our win % very high.
- Need Special Indicators? No.
- Chart: 240-minute
- Instrument: ES
- Long or Short? Long Only
- Entry: 1) Market must be Bullish (price above the 40 SMA); 2) CCI indicator must go into Oversold and then close above Oversold; 3) Enter at Open of next bar
- Indicator settings: CCI (24 Length; 100/-100)
- Hypothetical Profit: $16,730
- Hypothetical Max drawdown: -$3,125
- Profit target: 0.8 times the ATR (ATR at 14 Length)
- Stop loss: 10 times the ATR
- Trade size: 1 contract
- Hypothetical account size: $10,000
- Test Period: 1999-2018
- Number of Trades: 72
There we have it: 100% winners. But here are some important takeaways.
First, there aren’t a lot of trades. To get a high win percentage, we have to be very, very picky. This system only trades about 2-4 times per year.
Second, we do have a stoploss but that could be hit at any time. Yes, this stoploss made it through the tough 2000-2002 period and also the calamity of 2008-2009, but that doesn’t mean that it won’t happen in the future. If we get a stop-out, that would hurt our numbers quite a bit.
Three, other systems make more money. As I said, when we’re picky we don’t trade much which means we don’t make much. Other systems that take losses could bring us a lot more profit.
So, is it worth it? We’ve found a system that supposedly will win every trade. Is it worth it to us to make less if we win more?
That’s a very important question we all have to make.
If you’re on the email list, next we’ll look to see if another instrument can produce a high win rate, too. Otherwise, we’ll be back next week.
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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.