LeBEAU
VIDEO

Roughneck Crude Oil Trading System
by Charles Le Beau and David Elden

$1,226.30 AVG. WINNING TRADE - 78% WINNERS - LONG AND SHORT

Trade By Trade Report

Background: We view the energy complex and Crude Oil in particular as highly liquid (no pun intended) and one of the most potentially profitable futures trading vehicles. The Crude Oil market seems to trend strongly and frequently in both directions with surprisingly orderly price movements. To add to this appeal, every now and then there are potential production problems or political events that create extraordinary opportunities for major price changes. It has been clearly demonstrated that over the short run the world must consume vast quantities of oil regardless of the price level. Everyone surely remembers the infamous "oil embargo" and the dramatic price increases just prior to the Gulf War. Conversely, it has also been demonstrated that occasional periods of over production in one part of the world or another can drive prices downward almost as fast as they rise. These strong trending characteristics plus the trading liquidity in terms of huge volume and open interest make Crude Oil a prime candidate for a good trend following system. The "Roughneck" Crude Oil trading system is our second system in the energy complex and we plan to be adding more energy trading systems in the future. We believe that the "Roughneck" System complements our "Wildcat" System very nicely. Although both systems are trend-following in nature, the Roughneck System exits quicker and does a much better job of trading the short side of the market. Although it is not considered a frequent trader the Roughneck System trades more than twice as often as the Wildcat System.

Strengths of the system: Our historical test data from 10/17/88 through 12/31/98 shows 78% winning trades for the Roughneck with 49 winners out of 59 trades. These gains were achieved with unusually low risk. The system showed an average losing trade of about $1,023.85 and a total maximum drawdown of only $2,810.00. Our testing results showed 8 consecutive winners and only 2 consecutive losers.

We are doing something interesting in the way of trend identification in this system. We are using moving averages of the lows to tell us when the trend is up and we are using moving averages of the highs to tell us when the trend is down. The assumption is that when the trend is up the lows will be getting higher and when the trend is down the highs will be getting lower. Almost any means of identifying the intermediate trend would probably work just as well but we thought our clients might appreciate a little creativity in our methods of looking at trends.

Weaknesses of the system: Like most high winning percentage systems it doesn't trade as often as we would like. (The Roughneck makes only about six trades per year.) Since this is a basic trend-following system we would not expect it to be profitable in long periods of sideways price action. We will have to build another system specifically designed to trade profitably in the sideways periods.

Summary: This highly adaptive system is capable of capturing either large or small profits in both rising and falling markets. We think it is a well-designed system that has not been overly curve fit. The system is based on simple and logical concepts that incorporate the basic principals of profitable trend-following. We expect the Roughneck Crude Oil System to be an important part of our multiple-system strategy and a consistent performer in the years to come.

Includes $100.00 per trade deducted for slippage and Commissions

Includes $100.00 per trade deducted for slippage and Commissions

Includes $100.00 per trade deducted for slippage and Commissions