Bond Trading Strategy Refined
In the last blog post we looked at creating a bond trading strategy which created to 90% win rate. But as noted in that post, 44 trades or 29% of all trades taken, did not either immediately result in a win or a loss. These are the trades that require additional homework to fine tune the strategy.
When looking at these trades there were
- 16 trades that had three ticks of adverse excursion
- 8 trades that had four ticks of adverse excursion
- 10 trades that had five ticks of adverse excursion
- 9 trades that had six ticks of adverse excursion
What was not looked at in the first blog entry or Excel worksheet was whether or not it would remain profitable to stay in the trade and ride it out to either a profit or loss. The same criteria of five ticks for a win and seven ticks for a loss was used to determine wins and losses. A copy of the worksheet can be found here.
There were 16 trades that had three ticks of adverse excursion and an eventual winning record of 11 wins and 5 losses. By staying in the trade this resulted in 25 ticks of additional profit or $390.
There were 8 trades that had four ticks of adverse excursion and an eventual winning record of 6 wins and 2 losses. By staying in the trade this resulted in 16 ticks of additional profit or $250.
There were 10 trades that had five ticks of adverse excursion and an eventual winning record of 8 wins and 2 losses. By staying in the trade this resulted in 26 ticks of additional profit or $406.
There were nine trades that had six ticks of adverse excursion and an eventual winning record of four wins and five losses. By staying in the trade this resulted in the 15 ticks of additional loss for a loss of $234.
As you can see from these figures when there was between three and five ticks of adverse excursion it did remain profitable to stay in the trade resulting in an additional total profit of $1046 for the three week period. When there were six ticks of adverse excursion these were clearly trades that needed to be exited at breakeven or at minor support and resistance.
This brings the three-week trading record to 119 wins, 19 losses and 9 trades exited at breakeven. That is still an 86% winning trading strategy and even though there is a 4% drop in the percentage, there is a $1046 increase in your profit. The previous net profit for the three weeks was $5896 which is now adjusted upward to $6944 or $2314 a week for a single ZN contract.
The purpose of this post is not to suggest a bond trading strategy that you should be following without more testing. The purpose of this post is to describe how to use ZoneTraderPro and create a viable bond trading strategy that addresses all of the issues that you will see during the trade. This is why ZoneTraderPro is different from other software. ZoneTraderPro does not repaint anything and when it indicates a trade those arrows do not disappear. They remain exactly where they were seen in real time. No other software allows you the ability through back testing to create a viable and workable trading strategy.
To underscore the information presented in this post we don’t have to look any farther than the first two trades today. The first trade had three ticks of adverse excursion and became a winner in the second trade had four ticks of adverse excursion and became a winner. Nice day, again.
THIS IS NOT A TRADING PLAN. More work has to be done to fine tune this idea and if you trade it without doing your additional homework, you do so at your own risk.
Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program.
One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results.
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.
Information herein has been obtained and prepared from sources believed to be reliable; however no guarantee to its accuracy is made. Comments contained in these materials are not intended to be a solicitation to buy or sell any of the commodities mentioned. Past performance is not indicative of future performance results. Opinions expressed herein are the options of the author only and not the opinion of any firm the author may be affiliated or associated with.