I would like to use this topic to discuss the very existence (or non-existence) of the Holy Grail and what it means to you. What is the Holy Grail for you? Or is there one out there? There is no lack of discussions about this, I would like to share my experience and how it changed my belief.
In one of the Market Wizards books, a trader was said to win over 95% of his trades. I was wondering how that could be possible without affecting your risk parameters. I went on to do my research and testing.
First, a bit about myself. Iíve been trading for 5 years. Like all beginners, I had my fair share of losses and frustrations. Things started to turn around after I put more time into testing and managing risks. I was able to finish the last two years in green. From 10% to 30%, nothing spectacular but hell I was happy about that achievement.
Last summer I started to test a trend-following variation of my strategy, in conjunction with existing variations. Results are below. In 110 trades, only 3 losses (each less than 1% of equity).
- 6 month return: 100%
- Wins: 97%
- Drawdown: 27%
What happened to the DD? A few things need to be taken into consideration. Since this demo account was for testing, mistakes were encouraged to be made, journaled and corrected. A few trades were taken but were not part of the strategy, leading to unwanted drawdowns or profits. While a few +3% opportunities were missed due to late sessions or early exits.
Most errors happened in the beginning of the testing period as you can see from the equity drawdowns (4-5%) in July and August, this was due to my unfamiliarity with the strategy. The largest drawdown (+20%) was a GBPJPY trade which wasnít meant to be taken (cancelled in live account but forgotten on this test account, face palm haha). So once cleared of mistakes and execution errors, the actual strategy is pretty solid.
- 6 month return: ~100%
- Wins: +97%
- Drawdown: <10%
Maybe this is too good to be true and has yet to stand the test of time. Or maybe the Holy Grail exists after all, you just need to understand the game. How do you define it? I guess we agree it must be sustainable year after year. Is it a system that gives positive return say +10% every single year? Or one with minimum losses. If you can define your Holy Grail, you will have the parameters you can work on.