This post is going to be a little different. I have stumbled on to something worth testing. Scratch that. I have worked my ass off, almost 7 days a week, like a hermit, researching and back testing and digging to try to find out what the best traders in the world do. I am not talking about the day traders or the so called gurus with no track record. I am talking about the billionaires of the world such as Bill Dunn and Richard Dennis.
It has been a long journey but I found it about 16 months ago. Then I really started working out the kinks and really honed it about a month ago. I am still working out the details because the strategy I am using will kill off almost every trader because it scares them even though the mathematics behind it do not lie.
I have audited reports of data from the past several decades to prove this strategy works and has worked to create billions. Thats right, I said BILLIONS. It is an approach called Trend Following. I am trying to find a way to incorporate my hedging strategy to minimize the draw downs of the trend following strategies.
No I will not go into the details of exactly how I am testing it but I will show some the backtesting findings. So I will just jump right in.
My 5 year game plan is real simple. I have a goal of $1 Million. That is my goal. That has always been my goal. Now in the world of trend following, when they post the amount they made, they always take out the fees and all that so in order for me to make $1 Million for myself, I have to gross $4 Million.
Lets take a look and see if it is possible. Now this test below is going forward, I do not know the results. I have not looked or jumped forward in any way.
Ok I have backtested a years worth of trades. The results are below. I am getting kind of nervous because it isnt looking too good. I promised a big pile of money but currently I am not able to do it. Whats going on? Something is wrong.
So A year has gone by with no profits yet. I will continue to test following the same rules. Before I do, I want you to take a look at something from this chart. Do you see that not once but 2 times, my equity grew from $10,000 to $15,000 and the back down to $10,000? In reality that would hurt a lot. Now pretend this chart is a year, an actual year. Think about it. How would you feel with no profits for a year. I will tell you how I feel. I feel horrible and it sucks but I know that the great traders have made BILLIONS doing exactly what this chart shows.
Lets take a look at another year and see what happens.
BOOM! In one trade, we made our profits and doubled the account. Ok I am going to stop the test right there for now. I will resume and post updates in the days to come if I feel like it and have the time to do so.
Ok now about 6 months have gone by since the last year of testing and I am not making any money. I am still confident that my strategy works though.
From the peak, I have endured a huge draw down of about $8,000 now. Lets still keep on and see what happens. Just sticking to the rules.
All I have to say is look at the chart below. Is it working? The first year and a half, the strategy didnt make any money. Then trends started to develop.
$110,000 so far…
The question is, “How can I hedge and limit the drawdowns?”