ProfitabilityExperienced traders realize that profitability does not come from a sound methodology alone. No technical trading system is always right. It takes a combination of methodology, money management and psychology. All three of these areas are covered in Al's books. The keys to money management; the stop loss points and suggested position size, are also built into the spreadsheet software.
How Well Does This Work?
The best answer, obviously, is to look at the results obtained from applying this software to the real-world data. The overall results are shown on the chart on the 'Home' page. The results for each commodity are given below (and in the links to the individual commodities) and are for the 18-month period ending December 30, 2011. It assumes taking each trade signal as indicated by the software; and the trade filled at the daily midpoint. The overall results of these trades are given in the table below for two conditions - trading only one contract; and for trading a number of contracts based on equivalent risk.
Click on each of the commodities to see the price chart with the trade points as shown by the software, and a chart showing the gross profit; by trade and accumulated.
| COMMODITY | PROFITS (1 contract) | PROFITS (equiv. risk) |
|---|---|---|
| EURODOLLARS | $2,650 | $58,300 (22) |
| EURO CURRENCY | 47,300 | 47,300 (1) |
| E-MINI S&P | 24,400 | 48,800 (2) |
| COFFEE | 68,500 | 68,500 (1) |
| COPPER | 120,900 | 120,900 (1) |
| GOLD | 154,300 | 154,300 (1) |
| LEAN HOGS | 30,400 | 91,200 (3) |
| NATURAL GAS | 50,950 | 101,900 (2) |
| SOYBEANS | 58,700 | 176,100 (3) |
| SOYBEAN OIL | 25,750 | 103,000 (4) |
| WHEAT | 56,500 | 226,000 (4) |
| SUGAR (10 months only) | 11,000 | 88,000 (8) |
Equivalent Risk - The risk associated with trading a particular commodity is a function of the contract size and the short term volatility. These measures are used in the software to compute the Stop-Loss point, and the suggested number of contracts to trade can then be computed for a given allocation of $ at risk. This obviously varies with market conditions; so for purposes here it was taken for conditions existing 12/05/11. The number of contracts used is given in ( ) for each commodity. (See also 'Risk Management')
These amazing profits result from the combination of the excellent timing of trades and the unique strategy used in computing the "stop-loss" point at which to exit trades that went the wrong way. The results are quite compelling*. The true potential of this system is appreciated when you realize that it can be applied to commodities or stocks, and that it is independent of price/time interval; i.e., it can be applied to weekly, daily, or intra-day data series.
*Note that results achieved in simulated trading do not necessarily represent actual results that could be achieved.
