Profiting from Nat’s inflection points
What are these trades?
How much money do they make?
What’s the best way to trade them?
For some time we’ve been posting selected examples of trades based on Nat’s inflection points. (Here’s an example of the Inflection points; here is an example of the selected calls).
Naturally enough we’ve also been receiving questions about the overall results of these calls, and about how to use them. So we ran a number of simulations comparing the inflection points to the actual market price action for the first two months of 2019. Here’s what we found.
- In the first two months of 2019 Nat’s inflection point calls returned a net gain of $7,567.50 trading one contract per call.
- There is a simple, relatively safe and consistent method of trading them which is available now at no additional charge to every member with Full Access.
- Using that method Oil trades returned $6010 per contract over the two months of the study; ES trades returned $1537.50; gold trades returned $20.
- 276 orders were entered (two for each of three contracts for each of 46 trading days) of which 61 were filled and resulted in trades; 28 winners and 33 losers.
- After the first two days the cumulative profit/loss was positive and stayed positive for the entire period, with the exception of a single day; after the second week of January the simulation was never under water.
We will be posting the full results as well as a spreadsheet of the data collected, so you can do your own analysis. You may find an even more profitable way to trade Nat’s inflection points. Stay tuned.
How it works: the trading rules
After some experimentation we settled on a very simple trading method:
- Enter a buy and a sell order overnight at the inflection points for each of the three contracts covered in the Naturus daily worksheet: oil futures, gold futures and the e-minis (i.e. a total of six orders each trading day).
- All orders are good “day-only” — automatically cancelled at the close of the day session.
- Place a hard stop on every order: $300 for gold and the ES, $400 for oil.
- If an order is filled, cancel the opposite order, i.e. order-cancels-order.
- If an order is filled and not stopped out, cover it market-on-close.
This is not the most profitable method of trading Nat’s calls. Full Access members who are monitoring the market in real time will be able to get much better entries and exits.
But this method as profitable during our test period even for members who onl;y looked at the markets at the end of the eday. All of these actions can be accomplished with limit orders placed in the evening after the markets are closed and the daily workbook is published.
There is no need to watch the market after the orders are placed. And because the orders are “day only” they qualify for (much lower) day — instead of overnight — margins.
For example, “Day” margins for the ES futures are currently around $400 per contract. “Overnight” margins are currently around $5000 per contract. You can make these trades with a much smaller account.
The entire process should require no more than an hour a day in the evening to place orders and record the results.
Managing risk
This is a mechanical, systematic method of trading, and limiting losses is automatic … as long as you faithfully follow the system.
Barring slippage, the maximum daily loss is three orders filled and all three stopped out on the same day. The maximum loss for a day like that would be $1000 — gold and the ES stopped out for a loss of $300 each and oil stopped out for a loss of $400. That occurred once in the 46 days in this study.
The second and third largest daily losses would be $700 or $600 — two orders filled and both stopped out, with no offsetting winners. That happened twice in the 46 days in this study.
In total, of the 46 days in the study, there were net losses on 14 days. The longest losing streak was three days, for a total loss of $503.50.
Stops
We experimented with different stops, both larger and smaller.
Tighter stops decreased the max loss per trade, but increased the number of times the trades were stopped out, and missed some highly profitable trades. Larger stops did not seem to catch more trades, but increased the total amount of losses.
We settled on stops of $300 for gold and the ES, $400 for oil. This level gave the best result for us, but Your Mileage May Vary.
The results
Table: Weekly results, First Quarter, 2019
| Winners | Num. | Losers | Num. | Net | Total | ||
|---|---|---|---|---|---|---|---|
| January | Week 1 | $940.00 | 2 | $770.00 | 2 | $170.00 | 4 |
| Week 2 | $1,040.00 | 1 | $700.00 | 3 | $340.00 | 4 | |
| Week 3 | $752.50 | 3 | $1,600.00 | 5 | $-847.50 | 8 | |
| Week 4 | $1,735.00 | 2 | $600.00 | 3 | $1,135.00 | 5 | |
| Week 5 | $3,090.00 | 5 | $1,025.00 | 4 | $2,065.00 | 9 | |
| February | week1 | $1,875.00 | 3 | $800.00 | 3 | $1,075.00 | 6 |
| week2 | $3,930.00 | 6 | $1,000.00 | 3 | $2,930.00 | 9 | |
| week3 | $1,000.00 | 3 | $1,300.00 | 4 | $-300.00 | 7 | |
| week4 | $2,775.00 | 3 | $1,775.00 | 6 | $1,000.00 | 9 | |
| March | week1 | $460.00 | 1 | $700.00 | 2 | $-240.00 | 3 |
| week2 | $780.00 | 2 | $1,400.00 | 6 | $-620.00 | 8 | |
| week3 | $2,095.00 | 2 | $892.50 | 4 | $1,202.50 | 6 | |
| week4 | $2,885.00 | 6 | $1,000.00 | 3 | $1,885.00 | 9 | |
| Total | $23,357.50 | 39 | $13,562.50 | 48 | $9,795.00 | 87 | |
| Average | $598.91 | $-282.55 |
Which contracts work best?
No question: Oil is the most profitable contract to trade, by a long shot.
For the first Quarter of 2019, trades on oil contracts were far better than the other two combined and accounted for most of the profit. Trades on both the e-mini and gold futures showed a modest profit, but almost all the gains came from trading oil futures.
Over the first quarter, Oil trades produced gains of just a little less than $7,000; gold and the ES produced gains of about $1,500 each.
And oil trades were profitable right from the beginning. The cumulative profit/loss for oil trades turned positive after the first two days, and stayed positive for the entire 13 weeks.
Compare the following charts.
Profit/Loss results by contract
Cumulative results for E-minis, Oil, Gold and all three combined for the first quarter of 2019. Each bar represents one day and shows the cumulative net profit/loss including that day. Each group of bars represents the daily results for one week. Click charts to enlarge.
Oil only trades
In view of the vastly superior results from the oil trades, we separated out the results if only the oil calls were traded. Here’s what we got.
| Oil Trades - Q1, 2019 | Total Value | Number | Average Value |
|---|---|---|---|
| Winners | $19,190.00 | 17 | $718.24 |
| Losers | $5,230.00 | 15 | -$348.67 |
| Net/Total | $6,980.00 | 32 | $218.13 |
| Consecutive winners | 4 | Value: | Total: $2660 |
| Consecutive losers | 3 | Value: | Total: $1200 |
Overall, there were more losers than winners, in a ratio of roughly 4:3. But the winners were roughly twice as large.
Those results make it worthwhile to consider trading only the oil calls: one-third of the risk, one-third of the effort, and almost as much profit.
However markets run in streaks, and the relative profitability of different contracts can easily change. The daily range of oil during the time period was higher than for the other contracts and that affects the results; the more it moves the greater the opportunity.
To be continued
We will continue to update these results with current trades for a few months. If you would like a copy of the raw data to run your own analysis, please send a note to admin@naturus.com. Here is the spreadsheet used to draw the charts and the associated data (automatic download in xlsx format).