World Market - Crude Oil, S&P 500 (More Mature Market)

A quick summary up until now.  So far our simple RSI(14) 55/45 system is profitable on FKLI and FCPO (refer to earlier post).  Both traded on the same exchange which is Bursa Malaysia.

Now, before we order and celebrate with Louis XIII de Rémy Martin Limited Edition, let  me use the same simple strategy (before adding filters and optimization) on two other more mature world product that is very famous, namely S&P 500 Futures (CME) and Light Sweet Crude Oil Futures (Nymex).  One representing equity-based index futures (cash settlement) and the other commodity based futures (physical settlement), both traded in US dollar.  The period selected is Jan1996 - Aug2009 with continuous front-month back-adjusted EOD data.

First, the performance summary report for the crude oil futures:

Not too bad, still profitable, although the standard deviation of return is a bit too high, meaning that the return is quite volatile.  Notice a single largest profit of around USD96K?  If we were to take that away the strategy is not attractive at all.  So, it perform not as good in Light Sweet Crude Oil Futures (compare to FKLI & FCPO).

Now, let us see the result on S&P 500 Futures:

Ouch!  Losing money big time on S&P 500 index futures!  In fact, I can't even backtest with less than USD300K trading just 1 contract!  Furthermore, I didn't even put in the commissions and slippage.  Why is it so?

My hypothesis is that in a more matured and more higher level of competitiveness, you just can't use a simple strategy and hope that it will be sufficient, as there will be less chance of seeing and picking low hanging fruits! 

At this stage if you still insist on using the strategy to trade the FKLI and FCPO only, then you have to constantly monitor your trading performance and be on alert for any market paradigm shift, knowing that the basic strategy  doesn't work on a more mature market.

Disclaimer: Taken from CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT 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 PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.

AND

WHATEVER YOU READ HERE SHOULD BE USED AS LEARNING AIDS ONLY AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE. IF YOU DECIDE TO INVEST REAL MONEY, ALL TRADING DECISIONS ARE YOUR OWN RESPONSIBILITY.