This site’s robotic trading strategy will go through periods where it sits in cash. As of today, the system is in cash which is good as we avoided that big down candle on December 9th. That protected a lot of capital.
Check out this chart from the COVID-19 market crash earlier this year. Take note of the red box.
A buy and hold investor (NOT recommended) in the TQQQ would have seen approximately a -73% drop in their account value. I don’t care how emotionless anyone is, sitting through that type of drawdown and not panicking would be impossible
On February 20th, the TQQQ Trading Strategy was out of the market and sitting in cash. If you have not read about the TQQQ Trading Strategy, those Red Bars at the bottom of the chart are sell signals, telling us to not invest in the TQQQ at this time (stay in cash).
That was hard prior to February 20th. TQQQ kept going up and the system was in cash. Novice investors would look at that like a mistake. A more experienced trader using robotic trading would not care, because trading by the rules works better over the long term. Losing those short-term gains does not matter.
What matters is being patient and protecting capital. There are multiple time periods in the backtested performance of the system where the system was in cash while TQQQ went higher.
Inevitably that patience paid off as TQQQ dropped steeply and lost traders not robotic trading lots of money. Traders who followed the rules were set up to take advantage of that drop.
The Impact of Patience While Robotic Trading
Let’s look at how being patient paid off for traders using the TQQQ Trading Strategy during the subsequent market gains following the COVID-19 panic.
On March 13th, the system gave a buy signal (Green Bar). That was followed by 3 more purchases (the system buys in 25% allocations). The system finally went to cash again on April 20th, after a Red Bar signal. (see purple highlighted box in image below – click for a larger view).
What was the result of that trade? Because of the traders patience and staying out then the market made it’s first leg down, the cash was available to begin scaling into TQQQ.
Starting with $25,000, the trader would have ended up with over $37,000. An investor who simply bought SPY at the same time, would have only ended up with $25,235. Patience paid off.
The real benefit is that the TQQQ Trading Strategy did it with much lower drawdowns. Here are the statistics from the backtest in Amibroker. Note the sections boxed in black – the risk adjusted returns and the max system drawdown.
The Morale of the Story: Robotic Trading Requires Patience
At the end of the day, what does this tell us?
It tells us that when trading robotically, we need to be patient and let the system do its work. Even if the system is in cash and the market is going higher.
Inevitably the market with drop and you will be able to take advantage of that drop and begin to scale in. The result can be fantastic portfolio gains.