Are simple e-mini trading systems of any value?
According to Comrade Napoleon, a chief character of "Animal Farm," a famous Orwell satire, "all animals are equal, but some animals are more equal than other."
This apt observation of Comrade Napoleon can be applied to the world of trading systems, including e-mini futures trading systems that are of our main interest here, although in a somewhat different form. Namely, it seems safe to say that "all trading systems are unequal, but some of them are more unequal than other."
Translated, this means that trading systems are very different when it comes to their characteristics.
The less "unequal" of them, of better, more desirable properties, such as greater profatibility, lower drawdowns, a better looking equity curve, tend to consist of more than one strategy. They are composite in nature and thus more complex than the systems that are more "unequal," meaning of less desirable properties than those listed above. The systems in the latter category tend to be simple.
While the simple trading systems are easy to use from a purely operational point of view, they can be quite hard to handle mentally for their equity lines often are peppered with deep or, at the very best, protracted drawdowns. And nothing is more unpleasant, if not downright painful, in the life of a trader than a prolonged ever deepening drawdown that, as if to perfectly comply with notorious Murphy's laws, ends right after we abandoned the system for good.
Can thus simple systems be of any value to the trader? The answer is: yes, they can if augmented with intelligently designed filters, that is, the conditions that select only the circumstances which are most likely to lead to a profitable trading outcome.
For the sake of example, let us consider some simple e-mini day trading system. The most popular of such systems are breakout systems. For instance, the breakout of the first hour range of the daily trading session that starts at 9:30 A.M. EST is a good case in point. This is a simple system and not particularly appealing for it can lead to considerable drawdowns and its profitability, after slippage and commissions are taken into account, is marginal. Yet with appropriate filters things can be much improved.
A similar basic system of the same breakout variety has recently been turned by this author into a nicely profitable low drawdown system with extra strategies to boot generated by the indicators that were used to design its filters. Moreover, the entry of this system can be used as the entry for another, more complex, system once the conditions for the latter entry are partially met. This allows us to make the more complex system even more profitable, which is yet another way how the right use of simple systems can add value to our trading.