Backtesting the Crude Oil Scalping Strategy

It's been a while since we last backtested a strategy. We were busy looking for a trading idea that would work really well with commodities .

The strategy here depends on Parabolic SAR (PSAR) and can be used for Scalping Crude Oil.

Trade set up -

Buy Trigger - Note the High when PSAR (0.02,0.2) < Low AND Open equals Low

Buy - Current High > Noted High

Sell Trigger - Note the Low when PSAR (0.02,0.2) > High AND Open equals High

Sell - Current Low < Noted Low

We have already added a point-based target profit and stop loss to this strategy.

Here's the portfolio equity curve along with a few parameters from the back-test results of the Crude Oil Scalping Strategy -

Net Profit% - 191.84%

Exposure% - 30.60%

Annual return% - 24.75%

The drawdown curve of the Crude Oil Scalping strategy and it's related parameters are listed below -

Maximum System % Drawdown - (-)18.45%

Sharpe Ratio - 1.68

Risk Reward Ratio - 2.49

When we had back-tested the Crude Oil Scping Strategy, we had kept the target profit at 5 points. But shifting that value to 10 has generated enormously different results. The overall profit has increased significantly, while the stop loss has stayed regulated .

Net Profit% - 284.97%

Exposure% - 34.52%

Annual Return % - 29.44%

Maximum System % Drawdown - (-)16.92 %

Sharpe Ratio - 1.94

Risk Reward Ratio - 2.32

Now, in order to see what might have happened if you would have used this strategy in real time, we introduced a slippage. A 0.01% of slippage in the system gave the following back-test results :

Net-Profit% - (-)27.38%

Exposure% - 34.52%

Annual Return% - (-)6.39%

Max. System % Drawdown - (-)34.52%

Sharpe Ratio - (-)1.81

Risk Reward Ratio - (-)0.63

And adding a slippage of 0.02% gives the following results-

Net Profit% - 84.89%

Exposure% - 34.52%

Annual Return% - (-)32.30%

Maximum System % Drawdown - (-)85.28%

Sharpe Ratio - (-)5.56

Risk Reward Ratio - (-)1.89

This shows us that a good strategy, if not executed well, can result in massive losses. There's a reason why we say that algorithmic trading is the next big thing !

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