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Michael Mermer and some brokers have been promoting the ETS system lately.
It's only $25 to Futures Truth for a published report so I checked it out.
Since late October 1997, performance has been good. For the very short period
before that, real time performance was reasonably good on the daily bar, but
flat on daytrading, after giving back some big gains.
In total, for the 9 month period ended December 31, 1997, it has been
profitable on the S&P, but with high drawdown. However, you really need to
compare performance on the S&P to that of 'buy and hold' during the same
period.
Futures Truth has only tracked this system since March 31, 1997. They said
before that "this system was previously available but has some subjectivity
in the rules." Mermer assured the list via Deming that it's all mechanical,
so you can now hold him to produce and publish a proper backtest. Trading 101.
Before getting excited reading the broker ads and thinking about how much
money you are going to make on the ETS system, read the recent post by Tom
Cathey on "Futures Truth and System Promotion". It contains realistic
comments on the subject.
Just because brokers say it's ranked top ten by Futures Truth, doesn't
really mean much at all. Often it's just a 'short term blip'. Especially
with mechanical S&P500 daytrader systems. They tend to break quickly and
not stand up over extended tests, constantly needing periodic adjustment
(read re-optimization) of the parameters. There are very few exceptions.
Before purchasing or trading ETS for daytrading the S&P 500, or any other
market, request that the vendor or the broker produce a detailed extended
backtest, for at least a five to ten year period before March 31, 1997. There is
really no valid excuse for not producing it, unless there is something to
hide. Otherwise, it's just another sucker's game, plain and simple.
The same trading rules that are promoted as working so well in TS based ETS
after March 31, 1997 must have also worked before then, so don't accept
excuses.
Never justify use of an S&P daytrader system based on only the recent few
months performance. That is essentially what the public is being asked to do
by daytrading the ETS system based on only the Futures Truth report. Before
bolting in and day trading it, as a starting point, ask for a 'complete'
proper back test. Chances are you'll be glad you did.
Here's the highlights from the Futures Truth published report:
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Trading S&P 500 on the daily bar:
+++++++++++++++++++++++++++++++++
Drawdown is high and performance is well below a buy and hold comparison.
**See the buy and hold benchmark below, and compare profitability & maximum
drawdown.
March 31,1997 to current date of report December 31, 1997: Net Profit of
$32,375 with Max Drawdown of $39,825. This compares to $108,790 and $36,245
on a Buy and Hold. Between August 97 and December 97 ETS lost $39,525 on
daily bars, giving back more than half of what it made in the earlier part
of the year.
Trading the currencies - the JY, SF, & BP:
+++++++++++++++++++++++++++++++++++++++++
It's a NET LOSER on currencies during the reporting period. It lost
$7,137.50 on the BP, Lost $2,450 on the SF, made $1,787.50 on the JY. The
Win Ratio was 33%.
Trading Bonds:
+++++++++++++
It made $8,325 with a max drawdown of $3,612.50 with a 44.% win ratio.
BUT....$7143 of the total gain is from only ONE TRADE.
Daytrading the S&P 500:
++++++++++++++++++++++
Published results are available from Futures Truth from March 31, 1997 to
December 31 1997.
On the first 39 trades it LOST $6,400 net. Then it made $49,000 on one big
trade during the crash in October 1997. For the 9 months ended December 31,
1997 it made a total of $57,237 with a Max Drawdown was $35,725. Except for
the big outlier and the drawdown, at first that seems pretty good, until you
compare those results to the Buy and Hold benchmark below.** If you deduct
the one big winner as an outlier, it made only $8,337.50. This system is
better than many, but for how long does it really stand the test? Based on the
reported drawdown, you need about a +-US$50,000 account to daytrade it.
Whenever a short term mechanical trading system gets a disproportionate part
of the total gain from one trade, you have to be careful with the model
and discount those results somewhat from the analysis. It is a good basic
practice to just toss out the biggest winner and look at the rest of the
trades, because the realistic expectation of average trade (win & loss) is
one of the most important elements to look for in any system.
__________________________________________________________________________
Get the full report from Futures Truth and judge for yourself. Better still,
before even considering trading it, get the 'complete' multi-year quarter by
quarter backtest from the broker or vendor. It has to exist, it can be
produced and it will contain a much more complete picture than the 9 month
Futures Truth published report.
**Here's the comparative Buy and Hold benchmark, run out on the cash index
for convenience, for the 9 month period reported.
Buy & Hold $SPX-Daily 03/31/97 - 12/31/97 Rolls quarterly for comparison
Performance Summary: All Trades
Total net profit $ 108790.00 Open position P/L $ -2030.00
Gross profit $ 108790.00 Gross loss $ 0.00
Total # of trades 3 Percent profitable 100%
Number winning trades 3 Number losing trades 0
Largest winning trade $ 44520.00 Largest losing trade $ 0.00
Average winning trade $ 36263.33 Average losing trade $ 0.00
Ratio avg win/avg loss 100.00 Avg trade(win & loss) $ 36263.33
Max consec. winners 3 Max consec. losers 0
Avg # bars in winners 56 Avg # bars in losers 0
Max intraday drawdown $ -36245.00
Profit factor 100.00 Max # contracts held 1
Account size required $ 48245.00 Return on account 225%
This is not a solicitation of any kind. See the vendor's CFTC Disclosure
Statement.
Michael Paauwe
mpaauwe@xxxxxxxxxx
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