Ambush Update July 2015¶
Dear Ambush Traders,
It has been a while since my last update in January 2015. Although I had promised some of you that I would ready with this in June, things actually took longer than expected.
The reason for this is that I've been working on a new platform to backtest trade-strategies that now allow me to do much more than what I was able to do before. Doing such updates is one of the things that is much easier to do now. I am now able to show you numbers and graphs that I couldn’t show you before, that you will find very useful for your trading decisions.
One of the main goals of this report is to give you additional useful information that should enable you to independently put together a portfolio of markets. I understand that this has been the most difficult issue for Ambush traders. Having a lot of choices can easily become more of a burden than a blessing!
I apologize for the delay, but I'm confident this detailed report will make up for the waiting time.
Happy Trading,
Marco
A Better Way to Measure Performance¶
I'd like to start by introducing you to an advanced way of measuring performance. It's nothing new in the world of trading, but has become a standard in the industry for many years. I think the first time it became popular was when Richard Dennis and his turtle traders started to talk about it back in the 80’s. Later on, Van Tharp made it even more popular.
The idea is to measure performance in relation to the expected risk of a trade instead of simply looking at the results in Dollars, or Points/Ticks/Pips, etc. This allows you to normalize the performance of different markets and trading methods to get a better idea of the actual performance.
I will use this for most performance reports from now on. If this concept if new to you, please have a look into "Measuring Performance" (Ambush Menu to the right at http://tradingeducators.com/products/trading-methods/ambush) to learn more about it.
Whenever you see something measured in Rs in this report, this is what it means: 1R = 1 x Daily ATR(5)
Performance Report¶
First, let's look at the performance of Ambush 2.0 since we started with the new version and parameters in May 2014.
As many of you remember, 2014 was an extraordinary year regarding Ambush performance. It just went up and up throughout the year, with literally almost no drawdowns. Unfortunately, it usually doesn't go on like that forever.
As with any trading method, Ambush will perform better or worse than usual depending on market conditions. Now early 2015 wasn't very Ambush-friendly in many markets, and not as good as usual in others.
A few comments about the following reports: Our purpose is to see how well Ambush did in general in each of the markets, and compare those with each other. To keep things simple, there are no commissions included, no slippage, and no spread in the forex-markets. Also a limit-order is considered filled if price touched the limit price on that day, even if it didn't trade through. Real-world experience shows that if you're trading only a few contracts, you'll get filled more often than not in most of the markets. So I decided to go with that as the default for the following reports, but later on I'll also show you how much of a difference there actually is.
Futures¶
So far in 2015 we have had mixed results in Futures. By looking at all futures markets, which gives us the best overview, we started this year with a drawdown that lasted until March, after which we got another drawdown from which we are just getting out. While these drawdowns have been much stronger than what we had seen in 2014, they haven't been unusual. And if you compare the drawdown to the performance we achieved since May 2014 within just 6 months (about 90R), a drawdown of just about 30R isn't that bad!
Let’s look more closely at the futures performance of all futures markets (6A, 6B, 6C, 6E, 6M, 6N, DX, EMD, ES, FDAX, FESX, FTI, FTMIB, GC, GOIL, HSI, NG, NQ, RB, TF, Z, ZF, ZN). Not included are any mini-contracts since otherwise we'd double-weight those markets.
Now let's put that into perspective including the backtested results of the last 10 years (vertical red line = May 2014):
ETFs¶
ETFs performance doesn't look too good in the short-term, but there are just a few markets here (SPY, XLU, XIV, SDS, SSO) which are highly correlated.
But looking at the bigger picture (vertical red line = May 2014) it's obvious that nothing too bad happened. Keep in mind that the trade frequency is much lower here than in the futures...
Spot Forex¶
The currency markets have suffered the most this year. We'll also see this later on looking at the market details. The reason is probably because the euro-crisis strongly impacted the market moves. This can be a big issue in these markets since they're usually highly correlated.
Looking at the bigger picture (vertical red line = May 2014), we can see that we had a similar drawdown in 2008/2009.
Filled Or Not?¶
As mentioned earlier, there is always going to be a difference between backtesting and real trading. This becomes clear looking at the problem of when to consider a limit order filled. This problem with limit orders can quickly kill a great looking daytrading strategy when brought into the world of real trading. If you consider a limit order on a 5-minute chart filled, when it just touched the limit price but didn't trade through the limit, you're in trouble.
Now in the case of Ambush limit orders are much less of an issue because we're dealing with daily data. With daily data the odds of getting filled at the low for a whole trading day is much higher. But of course there's still some room here for differences.
Let's have a quick look at how much of a difference this can make by looking at the performance of the Futures markets again. As you'll see, there can be differences, but they're far from dramatic. Actually we're talking about just 2% of the all trades. This is true for the other markets as well.
Best Case Performance (all of the limit orders where price just touched the limit price are considered filled):¶
Worst Case Performance (none of the limit orders where price just touched the limit price are considered filled):¶
And here's the difference in a single graph. In the real world, performance would be somewhere between those bands, but probably in the upper range.¶
Suggested Markets Update¶
Overall, I'm happy with the performance of Ambush in most markets since last year. In 2014 Ambush performed so well even I was stunned, and so even though 2015 has been mixed so far, this shouldn't push us to unnecessary changes. Therefore, I won't touch any of the parameters.
But there are some markets I want to remove from the list of suggested markets for now. This will hit the currency and some equity markets the most, where we've seen a broad range of highly correlated markets to underperform strongly, probably due to the never-ending euro-crisis. In these market segments, I'd suggest focusing on the best performing markets.
Also I won't track any of the mini-contracts seperately anymore. It simply doesn't make sense since of course the mini-contracts will track the big contracts almost exactly 1:1.
The EUR/USD Spot Forex or EuroFX Future 6E traded at the CME is another market that is close to being removed. The only reason I'll keep it in for now is its very strong recovery during the last couple of weeks - but I'll continue to watch this one closely.
There's also one new market which is another bond-market, the FGBM, Euro Bobl (5-Year Bond) traded at the EUREX. Suggested parameters for this market is an ATR_ENTRY of 0.15 and a RSI_BUY_VALUE of 6.
Suggested Futures Markets changes:¶
Removed:¶
- 6B
- 6M
- HSI
- NQ
- FDAX
Added:¶
- FGBM
Suggested Forex Markets changes:¶
Removed:¶
- USD/MXN
- GBP/USD
- EUR/SEK
- EUR/NOK
- AUD/NZD
As usual you can find the updated list of suggested markets with all parameters in our private forum.
Which markets to trade?¶
This is the number one question I get asked all the time about Ambush, but it's simply impossible to answer this in general.
For many of you, account size will be a limiting factor. Not everyone has an account big enough to trade the RBOB Gasoline, for example, that often moves more than $3,000 on a single day. Other traders can trade only 3 or 4 markets in total at the same time. Then there are traders who keep on asking me for new markets they might add in addition to all the ones they’re trading.
You really have to figure this out for yourself. In general, I suggest diversifying as broadly as possible. Don't just trade equity and bond markets, or only currencies, or only commodities. Instead, find a mixed portfolio of markets that fits your account size! And if you can, further diversify by trading 3 stock index futures instead of one.
Let's look at the current Futures market volatility. In the following graph you can see the average daily volatility of the last 60 days (this is what 1R was in the currency of each of these markets on average during the last 60 days):
For example, if you decide to trade GC, 6A and ZF, to keep them equal, you would trade:
GC ($1550) : 1 contract
6A ($1000) : 1.55 contracts
ZF ($430) : 3.60 contracts
Of course you can't trade 1.55 contracts in the real world, so there'll always be some tradeoff unless your account is big enough. But depending on your account size you can come close by trading:
GC ($1550) : 2 contracts
6A ($1000) : 3 contracts
ZF ($430) : 7 contracts
for example.
You also might want to consider using the mini-contracts when available. These are often liquid enough, and allow more precise position sizing for smaller accounts.
Ambush Markets Performance Correlations during the last year¶
To help you to decide which markets to mix, I've added the following correlation matrices. It doesn't show you how strongly each of the markets correlate, but how strong the actual Ambush performance of trading these markets correlates. I believe this makes more sense. The correlation we're measuring here is between days where trades happened. This gives you a good idea which markets are likely to win/lose on the same day, which makes the most sense for Ambush since we always enter and exit on the same day. For those of you who don't know anything about correlations, have a look at this investopedia article.
