How to transform a poor trading strategy into a winner

Today I want to share a story with you.

This is the true story of Maxim (Max), and how he turned a poor trading strategy into a potential competition winner, using the strategy to take out 3rd place in the World Cup Trading Championships of 2017.

How did he do it?

First, let’s start with how he was essentially “tricked” into entering the competition by his friends, while sipping cool drinks from coconuts on a beach in Thailand:

Before the competition I was in Phuket, Thailand for seven months, with my friends and my wife. We had an office with my friends there and they are also traders. We were there on the beach, drinking coconuts and we spoke about the competition and there was an idea, ‘yeah, what do we think, can we do it like Larry Williams?’ ‘Yes, we can do it.’ In the beginning we had no plan how we were going to do it…

So I transferred my money to the broker and I asked them, ‘what about you?’

They said: ‘It was a joke. It’s very stressful, I want to enjoy my stay here in Thailand, in Phuket. I want to enjoy the beach.’

It was only a party idea, but I’m in the competition now… It’s a very funny story.


Tricked into entering a trading competition, with no plan on how he was going to do it…

In the beginning I saw that my strategy, my grain strategy did not work, because the capital is small…I saw index trading can bring very good performance, but I didn’t have an idea how to do it. I had some ideas from Larry Williams, pattern trading, price pattern trading, and to exit first positive open, and so I found some strategies, but their drawdown was a little bit too big, and there was not so many trades in a month and very poor performance…

When I trade only with the price patterns, I have two problems because I trade end of the day, I want to have a small drawdown, it is impossible to reach without taking less trades.

When I want to have a small drawdown and trade with only price patterns then I have to do less trades because I can take only two or three price patterns, but this is poor, maybe only one or two times in a month. When I want to have more trades and I trade more price patterns, then I have a big drawdown.

This was the problem, less trades means less drawdown, more trades means more drawdown and also more performance, but only 50% more return with 100% more drawdown, and so it was not good.

The solution?

Max started digging into Market Internals, to see if he could identify some opportunities to improve his pattern-based trading strategy.

I’m very impressed with Market Internals. It improved for me because I use tick on S&P 500 and I use divergence between tick from S&P 500 to tell me when it’s the end of the pullback on the S&P 500.

The S&P 500 is a pullback market. It has a strong uptrend, and when they come down it is a problem to identify when the pullback is ending and about to go up again, but this divergence shows me the pullback is ending and it’s time to go up again and that’s my entry point now.

This improved my performance very, very well, and the drawdown was very small and I had also more trades during the months.

And the result?

Could such a simple addition to the strategy REALLY have a dramatic impact on performance? Or did he make a mistake?

I think I originally had about 12,000 drawdown for 82,000 return, and after I used Market Internals my drawdown was 5,500 but the performance over 10 years in S&P 500 was 120,000 return. That’s end of day. That’s very impressive. I did also a stress test or a robustness test…

In the beginning I was very worried about the good performance. The performance was very, very good and I was thinking, ‘it cannot be true, maybe I have a mistake’. I was not confident in the strategy, and then at the beginning I thought maybe it’s a mistake in my work and maybe it won’t work very well, but the performance out-of-sample was the same performance as in-sample and I got more confidence and took more trades in the strategy.

At the end of the year, the performance had made more than 110%, but because in the beginning I was not so confident I didn’t take all the trades. If I did take all the trades the performance is maybe about 150-160%…

This is the type of impacts we’ve been seeing with other traders using Market Internals too.

Obviously there are no guaranteed results, but the reduction in drawdown and increase in performance is quite common when implementing Market Internals into an existing trading strategy. You can see another example here (with EasyLanguage code so you can replicate the test yourself).

Max shared alot more information about his trading approach in our conversation, so once the transcript is finalised in a few days time I’ll post it up on the website so you can read it in entirety.

If you want to learn more about how you can implement Market Internals into your own trading too, click here.



3 January 2018

Scroll to Top