Seen a Holy Grail lately?

The Holy Grail in trading is understood as the trading system that never fails. Not even once. It just keeps on piling profits, day in day out. A system like that obviously does not exist, which somehow does not prevent people from trying to find it. Unfortunately, this always proves to be only an exercise in futility.

It makes sense however to think about a realistic workable model of Holy Grail. Such a model would boil down to a trading system that has a smooth equity curve that continues to rise with only small dips here and there. Moreover, the dips in question should be viewed through a proper time resolution that depends on how frequently the system trades. For the systems that trade less than 20 times a month, which you see on these pages, it makes little sense to use a weekly resolution. A monthly one is what we need. In other words, what we want to do is to average profits out using a sensible time scale. Averaging out over the weekly data would not be as statistically meaningful as averaging out over the monthly samples, simply because the weekly samples are too small for that, at least for the systems we are interested in.

Our Holy Grail would then be a trading system that has very few and shallow monthly dips (losing months) and much more healthy monthly winners.

It is unlikely that a single system would be able to produce what we are after simply because a good system needs to specialize and by doing so it can address only certain market conditions. What we thus need is at least two systems that would address different market conditions: congested range bound situations and the situations where the market chooses a swinging (trending) mode. If we can find two systems that specialize in these conditions we should be able to produce a good realistic Holy Grail as long as the combination of such systems does not reinforce losing months.

It turns out that we can accomplish this using a clever combination of George I and George II, two e-mini futures trading systems offered on this site, one in the past. You can see here how this can be done, with the data for ES, the S&P 500 e-mini futures market that the systems in questions were designed for.

Our recipe for Holy Grail is thus as follows: take two portions of George I, mix it with one portion of George II and keep applying it until you don't need to do it any more! Well, there you have it. As simple as that. It is indeed very interesting that this particular combination of systems did not conspire to produce deeper dips in the equity curve while it did reinforce profits on a few occasions. It will be even more interesting to watch if this behavior will continue in the months to come. I will keep you posted about it.

Well, the Holy Grail did not last much beyond that. While the idea is certainly good in principle, in practice one can find it rather challenging to find two systems that would complement each other well enough for the scheme to work in a satisfactory manner.