Idea Generation and Implementation

Apologies to readers that are interested in the blog that it has been so long since I took any time to write about anything.  I don’t have any good excuses for the break I simply haven’t felt like doing a post for a while.  In the new year I plan on blogging more and tweeting less which will hopefully bring followers/readers a bit more value in the fullness of time.

Today I wanted to knock out a quick blog post on a simple trading strategy in Corn that I began to implement a while ago.  As this is the internet I’m going to say up front that this trading strategy:

  • Isn’t meant to be advertised as the greatest thing ever
  • Isn’t complex
  • Could probably be improved any number of ways and approached differently than the simplified version I will present here
  • Only trades 1 time per week
  • And last but probably most important:  Past performance is not indicative of future results

Twitter followers know that I’m an IRT user.  One thing I like about IRT that I haven’t seen much of on other platforms is that they have a lot of pre-built charts that can help traders come up with ideas on trading strategies and getting to know the movement of the markets they trade rather than a focus of the ease of which you can draw lines on a chart, etc.  You’ve probably heard veteran traders talk about “getting to know the personality” of the markets you focus on and I think IRT does a great job in helping traders do that.

Those of you that follow my grain commentary on Twitter have probably seen me talk about one of these pre-built charts that can give us an idea of the “best day of the week” in each market we want to study.  Basically what this chart produces for us is the net cumulative ticks gained or lost for each market over whatever period of time we want to perform a look-back.  In the case of Corn for example I can look back to see which day was the best for performance the last month, quarter, year, two years, and so on.   In case you’ve never seen me post one of these on Twitter here is what the output looks like:

corn

For this particular output I’m showing you each days cumulative performance during RTH for Corn over the past 2 years.  Hopefully the chart is visible enough for you to see that Friday is the best day of the week and on this particular look-back period it is by a substantial amount.  On the other hand, Wednesday has been the worst day of the week over this period of time.

So, having gone through this exercise with each market I trade using various look-back periods Corn stood out to me as having consistent positive Friday performance.  After reviewing this I came up with a strategy that a trader with literally no experience could implement:

  • Buy the close in Corn on Thursday in the front-month contract and sell the close on Friday.

That’s it.  For what I’m presenting here today there are no other rules or conditions for this trade strategy.  This strategy doesn’t care about the weather, or corn yields, the Farmers Almanac, or whether or not the year ends in a 6!  So, with a second reminder that past performance is not indicative of future results…here’s how this process has done (no slippage presented here and this is before commissions) for 2016 with two more trades to execute before the year is over:

  • TRADES:  48
  • Wins:  33  (69%)
  • Losses:  14 (29%)
  • Scratch:  1
  • Total Gain Ticks:  339
  • Average Winner:  16 ticks
  • Average Loser:  -15 ticks
  • Total MAE:  629 ticks  / Average MAE:  13 ticks
  • Total MFE:  830 ticks / Average MFE:  17 ticks
  • Best Consecutive Wins:  6
  • Worst Consecutive Losses:  3

1

2

For those not familiar MAE = Max Adverse Excursion or the max number of ticks the trade moved against the position while it was active.  MFE = Max Favorable Excursion or the max number of ticks the trade moved in favor of the position while it was active.

Closing Remarks

The purpose of this posts is to show readers a way you might come up with a trading strategy to test and implement.  As I stated above I’m not presenting this as the best strategy in the world or even the most superior way to implement the tendency for corn to perform well on Friday’s (for example readers might look to see if exits T+1 – T+5 produce superior results, if its better to take the set-up only when Corn is above X moving average, etc.) but this is a simple strategy that has done fairly well in a year where Corn is down ~8% for the year.  While it is true the strategy is very simple, people who won’t automate it may find that it isn’t easy.  One example of what can happen when you give yourself control over the entry and the exit is that you may find yourself looking at the MFE table above and thinking that you can outsmart the system by selling closer to the max MFE each week instead of at the close and therefore lock in a larger gain over time.  This is the kind of stuff that kills most traders, its not the strategy they are using, or “they” being out to get your trade, the USDA publishing fake data or anything else…its the inability to follow a plan every time even when we know it has an edge.

Finally, if there are any terms in this post you are not familiar with please check the terms used page.  If its not there simply ask me here or on Twitter and I will answer you asap.

*I’ve recently talked about various trading strats on Twitter and some people have come back to me talking to me about absurd slippage assumptions for XYZ market and then after some back and forth have revealed to me that “they don’t trade XYZ market anyway”…..if there are comments in this thread along these lines I will not be responding to them.  If you can’t use basic orders in Corn, which is the deepest of the grains, without getting large slippage you are trading far more size than I do and probably already have far superior strategies for trading than this one.

Best of luck in your trading in the New Year.

  • FF

 

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About Fat F1nger

Full time futures trader.
This entry was posted in Corn, Homework, Process, Trading. Bookmark the permalink.

4 Responses to Idea Generation and Implementation

  1. Thanks for all your work, effort and humor. It is much appreciated. Please keep it going in 2017!

  2. Dan Maltby says:

    EXCELLENT!

    On Sun, Dec 18, 2016 at 3:11 PM, FF Trading Blog wrote:

    > Fat F1nger posted: “Apologies to readers that are interested in the blog > that it has been so long since I took any time to write about anything. I > don’t have any good excuses for the break I simply haven’t felt like doing > a post for a while. In the new year I plan on blogg” >

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