The Strategic Trader
Detailed Strategy Evaluation

5-Minute Testing Procedures (Long Only)

Our initial focus is not to discover a profitable strategy. Instead, we aim to discover methods that can reliability tilt the odds in our favor.  The target will be any method that can predict market direction (5) standard deviations above the baseline average. We will establish baselines for both percent profitable and expected return per contract.

To establish a baseline we will run 100 random entry simulations against the target market. Because we do not know ahead of time the target trading frequency, we have to perform this test several times using various random rules. We will target 15,000 trades, 5,000 trades, 1,500 trades, and 500 trades over the sample period.  The simulations aim to predict the market direction 3, and 5 bars into the future.  We will be using a target market of ES Futures.

The strategies will not enter trades after 2:05  PM or before 8:30 AM. This ensures all exits are at the appropriate number of bars.

Baseline Results for 3 Bars into the future targeting 15,000 trades:

Percent Profitable: 54.21%
Expected Return:  -$4,048
Target Percent: 56.1%
Target Return: +$47,248

Baseline Results for 5 Bars into the future targeting 15,000 trades:

Percent Profitable: 53.27%
Expected Return:  -$6,435
Target Percent: 55.17%
Target Return: +$56,325

Baseline Results for 3 Bars into the future targeting 5,000 trades:

Percent Profitable: 54.18%
Expected Return:  -$2,009
Target Percent: 56.52%
Target Return: +$23,900

Baseline Results for 5 Bars into the future targeting 5,000 trades:

Percent Profitable: 53.31%
Expected Return:  -$2,900
Target Percent: 56.24%
Target Return: +$37,468

Baseline Results for 3 Bars into the future targeting 1,500 trades:

Percent Profitable: 54.32%
Expected Return:  -$455
Target Percent: 59.2%
Target Return: +$17,490

Baseline Results for 5 Bars into the future targeting 1,500 trades:

Percent Profitable: 53.35%
Expected Return:  -$1,080
Target Percent: 59.14%
Target Return: +$22,699

Baseline Results for 3 Bars into the future targeting 500 trades:

Percent Profitable: 53.91%
Expected Return:  -$367
Target Percent: 64.04%
Target Return: +$10,081

Baseline Results for 5 Bars into the future targeting 500 trades:

Percent Profitable: 53.30%
Expected Return:  -$173
Target Percent: 64.86%
Target Return: +$16,000

Based on these results, its evident that the sample period has a slight positive bias. Averaging around 54% profitable trades. However, the sample period has a negative profit expectancy of around -$.30 per trade. As you can see, the more trades we do the less variation and the lower threshold we need to cross to be considered “not random”. However, when targeting only 500 trades in the sample period a method will need to be nearly 65% profitable to rule out randomness.

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