LeBEAU
VIDEO

Wildcat Crude Oil Trading System
by Charles LeBeau, Dave Lucas and David Elden

$3,216.52 AVG. WINNING TRADE - 62% 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 "WILDCAT" Crude Oil trading system will be our first system in this complex and we hope to be adding more energy trading systems in the near future.

Strengths of the system: The excellent trending characteristics of this market allowed us to develop a system that would trade both long and short with better than 60% accuracy. Thanks to the unusually strong directional movement the average trade (win and loss) is a remarkable $1735 with the average winning trade being over $3,200. The average losing trade is only $698 which makes the average winning trade nearly five times as large as the average losing trade and the combined results (long and short) showed 62% winners. This is an excellent set of ratios. In many systems a high winning percentage must be achieved by widening the stops and increasing the risk. This market was so orderly that we were able to achieve outstanding results using a money management stop of only $900 per contract. We have often argued that sound logic in a system is more important than the statistics generated by historical testing. The "Wildcat" system is based on simple and very logical strategies and we have carefully designed the system so that the entries and exits will automatically adapt to changing market conditions. The "Wildcat" system is particularly adept at maximizing whatever profit potential the market happens to offer. One trade may exit when profit reaches a peak of $2,800 while the next trade may wait for $6,000 or more. Because the system is designed to take profits near a peak rather than on a pullback there is seldom any give back of large open profits. This feature should add greatly to our comfort in trading this system.

Weaknesses of the system: Like most highly profitable trend following systems the "Wildcat" doesn't trade as often as we might like. The system is obviously fit to one market and this can be a good or bad process depending on your personal views on the benefits of limited optimization. Although we think the parameters we selected are the most robust that we could find, we admit that they have been partially optimized and we are including those optimization reports in our documentation. There is plenty of room left for further optimization if you want to carry this process to a level beyond our judicious selection of apparently robust parameters. Summary: This is a good solid trend following system that has been applied to a good market. Based on the sound and simple logic and the highly adaptive features that are an integral part of the system we expect it to work well on a real time basis.

Summary: In the design of this system we demonstrate the advantages of having three measures of the ADX working in our favor to clearly identify unusually strong trends. Then we use the RSI which allows us to enter these trends at prudent levels rather than at extremes. Next our simple but effective exits allow room for profits to accumulate without taking large risks. And once very large profits are accumulated they are taken promptly near the peak rather than waiting for any profit shrinking pullback.

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