Our Top 5 Automated Trading Strategies By Performance Indicator

To date, we’ve shared our best 32 automated trading strategies. The following table provides the most recent backtest results for those strategies:

[Our apologies for the small font, but you can enlarge by clicking on the picture.]

We have yet to find the holy grail of trade strategy, but we’re getting closer and we’re continuing to refine our search criteria and performance indicators. As a quick reminder, we define the holy grail of trade strategy to have the following attributes:

• Profit factor greater than 3
• Annual drawdown less than 3%
• Annual return greater than 500%
• Minimum daily net profit of -$1,000
• Avg Daily profit greater than $1,000
• Less than 5,000 trades annually
• Greater than 500 trades annually

We use performance indicators as a way to capture these attributes in table form for comparison. The goal of this post is to piggy back off our most recent update with a look at the highest performing strategies in each category.

Top 5 Strategies By Performance Indicator

Max Draw-down

The chart below provides an overview of the top 5 strategies based on max drawdown.

Drawdown refers to the maximum drawdown statistic, which provides you with information regarding the biggest decrease (drawdown) in account size experienced by the strategy. Drawdown is often used as an indicator of risk.

• Drawdown = single largest Drawdown

As an example, your account rises from $25,000 to $50,000. It then subsequently drops to $40,000, but rises again to $60,000. The drawdown in this case would be $10,000 or -20%. Take note that drawdown does not necessarily have to correspond with a loss in your original account principal.

Strategy 23 is the only strategy with a drawdown of less than 3% for the entire year. In other words, it is the only strategy that meets our “holy grail” criteria, but the profitability is too low. Strategy 23 has a profit factor of 1.37, but made only $14K in net profit. Strategies 15 and 10 both had a max drawdown of 3%, and Strategy 10 has a remarkably high net profitability. As a result, it has the highest return on max drawdown for the second update in a row. Strategy 10 is emerging as one of our best and most consistent strategies, but it also has a low profit per trade. We’ll talk more about Strategy 10 below.

Return on Max drawdown

The chart below provides an overview of the top 5 strategies based on the return on max drawdown.

Return on Max Drawdown is calculated by dividing net profit by the max drawdown. In this way, max drawdown is considered the max capital investment. You can use the dollar value of max drawdown as a proxy for how much capital you need to trade the strategy. And, the higher the return on max drawdown, the better the strategy is in terms of risk/reward.

Strategy 10 has the highest return on max draw due to its low risk, high profitability profile.

Percent Profitable

The chart below provides an overview of the top 5 strategies based on the percentage of profitable trades. This is a metric that shows the number of winning trades divided by the number total trades.

Strategy 8 has the highest percent profitability at 58%, followed by Strategy 28 and 4 at 54% and 53%, respectively.

Net Profit

The chart below provides an overview of the top 5 strategies based on net profitability.

Strategy 3 has the highest net profitability at $331K, but it also has the highest number of trades, which gives it a profit per day of $1,311, but a profit per trade of only $11. This strategy is ideal for those on a fixed rate commission plan. The same goes for Strategies 9 and 10. Both have high profitability produced by a high number of trades. The good thing about strategies with a high number of trends, however, is that backtest results are generally more reliable.

Profit/day

The chart below provides an overview of the top 5 strategies based on profit per day.

Strategy 3 has the highest profit per day at $1,311 followed by Strategies 9 and 10. Profit per day tracks with net profitability.

Profit/trade

The chart below provides an overview of the top 5 strategies based on profit per trade.

Strategy 28 has the highest profit per trade at $525/trade followed by Strategies 30 and 25 at $504 and $454 respectively. While profit per day tracks with net profitability, profit per trade does not. In general, strategies with the most trades have the lowest profit per trade and vice versa. Any attempt at finding the holy grail of trade strategy will involve finding a way to break this generality.

Lowest Daily Net Profit

The chart below provides an overview of the top 5 strategies based on the lowest daily net profit. In other words, we’re looking for the strategy with the lowest “worst” performing day in the backtest.

Strategy 23 has the lowest daily net profit at $1,675. This tracks with max drawdown. Strategy 10 makes the list at third place again, with a lowest daily net profit of $4,200.

Highest Daily Net Profit

The chart below provides an overview of the top 5 strategies based on the highest daily net profit, which refers to the the best performing day of the strategy in the backtest.

Strategy 25 has the highest daily net profit at $19K. This tracks with a high max drawdown of 11% and suggests that Strategy 25 is highly volatile. Strategy 3 and 6 come in second and third place at $19K and $17K, respectively.

Profit Factor

The chart below provides an overview of the top 5 strategies based on the profit factor, which is calculated as gross profit divided by gross loss.

Strategy 32 has the highest profit factor at 1.93, followed by Strategies 28 and 30 at 1.80 and 1.79, respectively. Both Strategy 32 and 28 also have a positive cumulative net profit (28 has the highest), which means that even though the strategy has a max drawdown of 6%, the account value never went below $0. This has more to do with the timing of the trades than anything else, but having a high profit factor doesn’t hurt.

Lowest Daily Cumulative Profit

The chart below provides an overview of the top 5 strategies based on the lowest daily cumulative profit. This refers to the day with the best performing day on a cumulative basis. When we say best, we mean highest.

Strategy 28 has the lowest daily cumulative profit at $9,690, which means that even though the strategy had a max drawdown of $16,365, it never dropped below $9,690. Again, this has more to do with when the strategy is started. This is one reason we include profitability per day of week and hour of day in our strategy results.

Highest Daily Cumulative Profit

The chart below provides an overview of the top 5 strategies based on the highest daily cumulative profit. This refers to the day with the worst performing day on a cumulative basis.

Strategy 3 has the highest daily cumulative profit at $331K, which tracks with highest net profitability. What stands out is that Strategy 1 has one of the highest daily cum profits and lowest cumulative net profit. While the lowest daily cumulative profit tracks with a higher profit factor, the highest daily cumulative profit tracks with strategies that have a lower profit factor.

In summary,

• Strategy 3 has the highest net profitability at $331K.
• Strategy 3 has the highest daily cumulative profit at $331K.
• Strategy 3 has the highest profit per day at $1,311.
• Strategy 8has the highest percent profitability at 58%.
• Strategy 10 has the highest return on max draw at 1958%.
• Strategy 23 is the only strategy in this range with a drawdown of less than 1%
• Strategy 23has the lowest daily net profit at $1,675.
• Strategy 25 has the highest daily net profit at $19K.
• Strategy 28has the lowest daily cumulative profit at $9,690.
• Strategy 28has the highest profit per trade at $525/trade.
• Strategy 32 has the highest profit factor at 1.93.

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