SCOTT WELSH TRADING BLOG

Is This Chart Too Good to be True?

Is This Chart Too Good to be True?

August 1st, 2018

You know how I feel about too good to be true.

I believe that life can be really good and really true. It doesn’t have to be bad to be reality.

However.

Over a year ago, I was messing around with some testing on the Fair Value style. My preferred chart at the time was 15-minute and my preferred instrument was Forex.

But I decided to branch out just for fun.

And that’s where this crazy chart came from.

Before I share the results, it’s important to know that there are so many things wrong with this chart.

For one, it’s on a Daily chart. Well, that’s not really “wrong” but it’s not the timeframe I spent dozens of hours on.

For another, it’s a Long-Only chart. Everyone knows we should trade in both directions, so that, of course, makes this research suspect.

For a third reason, it doesn’t use a stoploss. That simply makes it way too risky. (Warren Buffett would never take a trade unless he had a firm stoploss, right?)

Fourth, it’s the Australian Dollar futures contract. What kind of a person would trade the @AD anyway?

Fifth, it doesn’t trade very much. It didn’t take a trade in 2009 and sometimes it only trades once a year. No one trades like that.

So, you see, this is a ridiculous chart, and that’s why I’ve done nothing with it. I’ve just let it sit quietly on my Tradestation platform and take its ridiculous trades.

A short time ago, on a lark, I checked in to see how bad it’s been doing.

Whoa.

Here’s the Tradestation Performance Report:

https://www.screencast.com/t/IULfi1FQ

A few things about that Report.

One, the win % is 98.04%! Get out of town with that garbage.

Two, it makes $39,516 over that past 16 years and only has a max drawdown of -$3,970. That’s a 10:1 profit to drawdown ratio.

And check out the Annual Returns:

https://www.screencast.com/t/g0MdCbvKmC4

No losing years. More than that, on a hypothetical $7,800 account (twice the max drawdown), there are 4 years where we would have made 50% or more on our money.

And that’s all with a 98% win rate.

What do you think about that? Is it preposterous? Stupid? Too good to be true?

Or is it something that should be traded immediately with real money?

Tomorrow, on the weekly YouTube video, I’m going to go over this ridiculous system in detail and give all the settings.

Hope you can join me.

You can subscribe here if you’re interested: https://www.youtube.com/channel/UCxAWDDaTLVy_diMVJCkGl3A