US-100, 2% Risk

Disclaimer

This is not financial advice. The provided data may be insufficient to ensure complete confidence. I am not the original author or owner of the idea. Test the strategy on your own paper trading systems before using it with real money. Trading involves inherent risks, and past performance is not indicative of future results. I am not responsible for the strategy's performance in the future or in your case, nor do I guarantee its profitability on your instruments. Any decisions you make are entirely at your own risk

Check my previous post for more details!

Idea

Stochastic is a momentum indicator, very similar to another indicators (like RSI).
As the study shows, it is very good for entry. But to use it for exit, you need to trade Trend Following.
We will look at how it can be used for Mean Reversion.

The indicator produces two lines and takes two periods. Unfortunately we will not use both, as the second one is just an average for the first one. ('D' line is not used in strategy).

Please don't take the title of the post or the pictures to heart. Do your research!

Strategy

• Instrument: US100 (NQ), US500 (ES)
• TF: 1D (The strategy does not work on time frames below)
• Initial Capital: 10k$
• Lots (In money): 500$
• Data Period: 2012.01.19 - 2024.11.28

The strategy buys only if there are no open trades. That is, there can be only 1 trade at a time.
The strategy does not have a shortsell trades as instrument is often in the uptrend.

Inputs:

1. K_Period: 1/2/3
2. LowTh: 10/15/20/25/35/45/50

D_Period=1
Slowing=0

Buy Rules: Stoch(K_Period, D_Period, Slowing).Fast < LowTh
Fast is 'K' Line
Filter: Close > SMA(200) (Optionally)
Close Rule: Close > High[1]
So yesterday's close was higher than the day before that

A couple of examples of trades

Since it is a Mean Reversion strategy:
I do not recommend using the Stop Loss as it increases the drawdown and reduces the profit.
I don’t recommend using Take Profit as it reduces profits.

Results

US-100

US-500

AAPL

EW

US-100, Filter: Close >SMA(200)

US-100 Overview

US-100 Trade analysis

Conclusions

1. Stochastic is perfect for entry, but bad for exit.
2. Works well on all MR instruments
3. 76% winrate, which is pretty normal for Mean Reversion.
4. The strategy has almost no optimization, but it works with the same parameters on all MR instruments.
5. You are free to choose when to exit the position.
6. Simple risk management is already doing more than the return of US100 with much lower drawdowns (7+ return / dd ratio)
7. Sharpe Ratio > 1, which is very rare for MR strategies.

Your task as a trader is to do more profit than an investor in the same time period on the same instrument.
It can be done with a portfolio of strategies*. With the right risk management it is possible to do it with a single strategy*!