The High-Percentage Hornet Portfolio
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This week we're looking at one of my favorite topics, a "bad" reward-to-risk ratio.
Many people tell us we can't trade unless our wins are 3-5 times as big as our losses.
But I don't think that's true. And the research doesn't think so either.
To illustrate, we'll use the Hornet robot. I first developed this robot in 2013 and it hasn't changed much since then.
The only thing I've updated is the reward-to-risk ratio.
I've made it worse.
Of course, "worse" is in the eye of the beholder.
In the good old days, I only traded the Hornet on the USDJPY. Why? Because it worked nicely.
Now, I prefer to trade it on several currency pairs. Why? It smooths out the drawdowns.
For this portfolio, we'll use only JPY pairs. The reason is that JPY pairs seem to do well with this high-win-rate type of trading.
Do other pairs work? Yes. Several others test out well.
But we'll keep it relatively simple, and stick to JPY.
As you may know, the Hornet robot uses the RSI indicator and goes in the direction of the overall trend. But it gets into a trade on a pull-back.
It then goes for a small profit target and uses a big stoploss. The idea is to keep accumulating small win after small win while occasionally taking a big stopout.
Specifically, we're using GBPJPY, USDJPY, NZDJPY, CHFJPY, CADJPY, and EURJPY on the 15-minute chart only. Our reward-to-risk is a paltry 0.18 to 1. Of course, our win rate is designed to be high.
And here's the hypothetical Equity Curve created by Portfolio Tester from 2017-2023 trading 1 lot each time:
For this test, I did incorporate trading costs and the Hornet does have an input that allows us to not take trades when the spread gets over a certain level.
That said, we still have to consider spread-widening at the entry and exit points.
Nonetheless, even if we don't get exactly the same results as the testing, if we get close it could be excellent.
Overall, "Bad" reward-to-risk doesn't look so bad.
But what if we made it less bad?
We'll cut down our stoploss (and our win rate) in the next Newsletter.
Talk soon.
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Disclaimer:
It should not be assumed that the methods, techniques, or indicators presented in these products will be profitable or that they will not result in losses. Past results are not necessarily indicative of future results. Examples presented on these sites are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The authors, the publisher, and all affiliates assume no responsibility for your trading results. There is a high degree of risk in trading.
HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER- OR OVER-COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
