The Simple Robot I Want To Trade

Oct. 23, 2022

This week we’ve discussed the life-changing power of simple.

If a habit is simple to do, our lives can change permanently.

Complexity can be the enemy of longevity. If it’s hard to make a healthy dish, it won’t get eaten.

The same with trading. If it’s complex to trade, the chances are higher it won’t get traded.

A daytrading system with five multiple time frame indicators will probably be poorly executed or not executed at all.

But there are other benefits to simplicity. Like we talked about in the last Newsletter, a system with no inputs to mess with won’t get messed with.

Furthermore, simplicity lasts in another way. Not only will simple get done, but simple will work far into the future.

Possibly forever.

For example, simple trend following will always work. There will always be trends.

But here’s the thing about this form of simple: It loses.

Systems that use timeless principles that always work…won’t work for certain periods of time.

In other words, simple systems are guaranteed to last. And they’re guaranteed to lose.

An easy example is to just buy an index fund. While it’s debatable that it will work forever, it has worked at times. But it always will have losing periods. 2022 reminded new traders of that.

The best, longest-lasting system will have losing periods.

The most fragile systems win all the time. The ones that don’t lose are the ones that end up in Madoff-like disasters.

Which brings us to the this particular system.

It’s arguably the simplest robot I have. It enters on a breakout above/below yesterday’s high/low and has no profit target.

It just rides the natural market momentum up and down. It takes only what is organically given.

And it puts a small stoploss on it with a mild move to break-even.

It’s the Ride-the-Wave-Using-Timeless-Principles Dragonfly. I’ve had this idea for years and I turned it into an actual robot in June 2021.

Does it work? Do timeless principles produce profit?

Here’s a screenshot of this strategy trading 1 lot each time on the GJPY only from 2003-2022: https://www.screencast.com/t/NeZdMpJac4.

And here’s the Equity Curve:

And here’s how it’s done since I tested it: https://www.screencast.com/t/uLGz6UxYtUW7 The testing shows a profit of over $6k in the last sixteen months.

The takeaways? It obviously hypothetically makes profit. If we compound it, it hypothetically turns a $10k account into over $5 million in about 19 years.

And, of course, it loses. It has two losing years from 2003-2022:

Why do I want to trade it?

Because it’s so simple. Because it makes sense that it will bounce back after a losing period. With no optimized profit targets, it will win big when the market trends.

The only way this won’t work is if the GBPJPY stops trending. Which, arguably, is never.

All that simplicity makes it very enticing intellectually.

Although intellectually sound decisions don’t always make it into the live market.

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.