Building a Profitable Strategy w/ Claude - Day 38: ORB: It Works... For Now — Transcript

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1. 0:00Hello guys and welcome back to the
2. 0:01series where I'm building a profitable
3. 0:03trading algorithm using AI. So in the
4. 0:05last video we found our first profitable
5. 0:07strategy, the famous opening range
6. 0:09breakout, and we added a daily bias to
7. 0:12it using the SMA 20 on the daily
8. 0:14timeframe, so we only trade with the
9. 0:16trend. Price above the SMA 20, we take
10. 0:18longs only. Below it, shorts only.
11. 0:21Simple. And this is the equity curve on
12. 0:23NQ from 2021 all the way to 2026, and
13. 0:27the metrics are decent. But it's not
14. 0:29something I would trust on its own to
15. 0:31get funded in a reasonable time. And
16. 0:33here's why. Look at these long flat
17. 0:37stretches where the curve just
18. 0:39consolidate, okay, and goes nowhere.
19. 0:41That's called time underwater. The time
20. 0:44you spent sitting below your last equity
21. 0:46high waiting to recover. So on a single
22. 0:49market like NQ, those stretches are long
23. 0:52enough, maybe not to blow your account,
24. 0:54but to make the process of getting
25. 0:56funded a bit
26. 0:59hard. So I put it through to test in
27. 1:01this video. Test one, can it survive on
28. 1:04other markets? And that's something
29. 1:06called porting, all right? Taking the
30. 1:08same strategy and applying it to
31. 1:09different assets. So first, we did the
32. 1:12easy ones like ES and the Dow Jones,
33. 1:15basically NQ's cousins, super
34. 1:17correlated, so we can So we're not going
35. 1:20to change nothing. A straight copy
36. 1:22paste. And then the harder ones, gold,
37. 1:25EUR/USD, and the DAX. So those are
38. 1:27uncorrelated, so
39. 1:29straight copy won't work. They need some
40. 1:32re-anchoring, and we'll get into exactly
41. 1:34how.
42. 1:35Now the goal is to stop leaning on one
43. 1:39single strategy on one single asset and
44. 1:41turn it into a set, all right? So more
45. 1:44profit and less drawdown. Test two, I
46. 1:47took the same strategy that worked so
47. 1:49well from 2021 all the way to 2026 and
48. 1:52run it on a completely different era.
49. 1:55The last decade from 2010 all the way to
50. 1:582020 just to see if the edge is real or
51. 2:02if we got lucky with the recent years.
52. 2:05And I going to be honest with you, the
53. 2:07results were a bit surprising to me. And
54. 2:10we're going to have to make a hard
55. 2:11decision about this opening range
56. 2:13strategy. But before we get into it,
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71. 2:48Now, let's get into the video. All
72. 2:50right, so let's start with the first big
73. 2:52question. Does this strategy transfer to
74. 2:55other markets? And we're going to split
75. 2:57this into two groups. So, the correlated
76. 2:59markets first, and then the uncorrelated
77. 3:02ones. We will start with a literal port,
78. 3:05same strategy. There is no changes
79. 3:07applied straight to ES and then YM. And
80. 3:11I want to be clear about why we're going
81. 3:14to do this. Um it's not that we can
82. 3:16trade all of them together,
83. 3:18but it's to find out if maybe the exact
84. 3:20same strategy maybe works better
85. 3:23somewhere else on ES. It has better
86. 3:26profit or less drawdown or maybe both.
87. 3:28So, we would just trade it there instead
88. 3:30of NQ. All right, so even if this
89. 3:33strategy works good on both ES and NQ,
90. 3:37we could not trade them at the same time
91. 3:39because ES and NQ moves together, all
92. 3:41right? They make money at the same time,
93. 3:44and more importantly, they lose money at
94. 3:46the same time. So, if you run this
95. 3:47strategy on both, you're not
96. 3:49diversifying anything, all right? You're
97. 3:51just doubling your risk on what is
98. 3:53basically the same trade, okay? You
99. 3:56might as well trade NQ alone and
100. 3:58multiply your risk by two, okay? So,
101. 3:59that that's not diversification.
102. 4:01So, the literal board is only about
103. 4:03picking the best home for the strategy,
104. 4:06nothing more. [music]
105. 4:07Now, the second group is the
106. 4:09uncorrelated markets. This is where it
107. 4:11gets interesting, okay? We're going to
108. 4:13take the logic of the strategy and try
109. 4:15to apply it to markets that have nothing
110. 4:17to do with the tree indices. We're going
111. 4:20to try gold, EUR/USD, and the DAX. You
112. 4:23are more welcome to try other assets,
113. 4:26and we already know a straight copy pass
114. 4:28won't work here because these markets
115. 4:31they pretty much open at different times
116. 4:33and behave completely differently. So,
117. 4:35instead, we're going to re-anchor, all
118. 4:37right? Meaning, instead of forcing the
119. 4:399:30 to 10:00 a.m. range that we found
120. 4:43that it works on NQ,
121. 4:44we're going to find the range that
122. 4:46actually matters for that specific
123. 4:48market, all right?
124. 4:50So, after running everything, all those
125. 4:52assets into the backtesting pipeline
126. 4:53that I have, I also had Claude code to
127. 4:56summarize everything into this clean
128. 4:59report. As you can see, our effect
129. 5:01uh I'm not going to drown you into the
130. 5:03boring details, so let me just um
131. 5:06jump to the cream
132. 5:08to the cream of it, this table right
133. 5:10here.
134. 5:11As you can see, NQ is our benchmark. On
135. 5:14ES, it does transfer,
136. 5:16but it's slightly weaker, as you can
137. 5:18see, profit factor of 1.38,
138. 5:21net R basically in line with NQ, but
139. 5:24slightly higher max drawdown. So, yes,
140. 5:27it works there, but since it is slightly
141. 5:29worse, we're just going to stick with NQ
142. 5:31for now.
143. 5:32If ES, for example, had been better, we
144. 5:34would have moved there and traded it
145. 5:36alone.
146. 5:37On YM, as you can see, it fails. The win
147. 5:40rate drops all the way to 45%.
148. 5:42Profit factor 1.06, that's break even,
149. 5:46and only 13 are over six years with a
150. 5:49max drawdown bigger than the total
151. 5:52profit. So, that's a hard no.
152. 5:55On gold, very weak. [music] We anchored
153. 5:57it to 820, which
154. 6:00a couple of researchers says that it is
155. 6:03when gold gets its big volatility
156. 6:04injection. And we tried other
157. 6:07variations, but
158. 6:09it's a really thin edge. I just can't
159. 6:12trade it. All right, you'll see it even
160. 6:14clearer on the equity curve later on.
161. 6:17On EURUSD, it's a disaster. Negative net
162. 6:20R, loses across every single variation
163. 6:23we drew at it. And I want to be fair
164. 6:25here, that does not mean that EURUSD has
165. 6:28no breakout edge. It just means that
166. 6:29this particular opening range doesn't
167. 6:32work on it. Okay, that's it.
168. 6:34But then, the DAX, the German 40. And
169. 6:37this one really surprised me because it
170. 6:39works. It has 44% win rate, profit
171. 6:42factor of 160, 38 R, and a max drawdown
172. 6:46of only 9.2. So, that's clean,
173. 6:50decent results, but there is a catch.
174. 6:53The data
175. 6:54from Data Bento that I pulled, it goes
176. 6:56back only to the start of 2025.
177. 7:00Okay? So, that's not, in my opinion,
178. 7:03enough. Although it looks like a really
179. 7:05good sign, but we need to pull more data
180. 7:08from another source and see
181. 7:10um the whole um
182. 7:13equity curve and the metrics.
183. 7:15Now, I want you to look at this equity
184. 7:17curve that um
185. 7:19have all the strategies and all the
186. 7:21assets. Check the legends right here on
187. 7:23the top left, so you know which line is
188. 7:25which.
189. 7:26First, um pay attention to NQ and ES.
190. 7:29See how they basically trace the same
191. 7:31path. All right, they have the same
192. 7:33profit and the same drawdown. Okay,
193. 7:36that's exactly why you can't trade them
194. 7:38together because of the drawdown, not
195. 7:40the profit. But now watch NQ against the
196. 7:44DAX. All right? The DAX is this blue
197. 7:46line.
198. 7:47NQ [music] hits um a consolidation
199. 7:50period. It doesn't make money, as you
200. 7:52can see here.
201. 7:53But,
202. 7:55over that same stretch, the DAX is
203. 7:57making money.
204. 7:59And later, it flips. The DAX uh cools
205. 8:02off. It goes into couple of
206. 8:06a bit of draw down, but NQ now is making
207. 8:08money at that same period. So, that's
208. 8:11the whole game, guys. When one is under
209. 8:13water, the other is earning money.
210. 8:16So, when you stack these two together,
211. 8:18you will get a smoother account curve.
212. 8:22That's the real diversification.
213. 8:24And this is why we cannot trade ES and
214. 8:27NQ together.
215. 8:28But, as you can see, gold and YM,
216. 8:31they're just break even over the years,
217. 8:32and EUR/USD is a disaster.
218. 8:35But, we have NQ and the DAX as a
219. 8:38profitable trading assets. So, that's
220. 8:40[music] big step forward. Now, I have
221. 8:43another section right here for the DAX.
222. 8:45So, what happened? Um
223. 8:48This is quite interesting. First, we
224. 8:50tried the literal port, and we anchored
225. 8:53>> [music]
226. 8:53>> and we anchored it to the 9:00 a.m.
227. 8:56That's Frankfurt cash open, which is the
228. 8:59the DAX version of the NQ 9:30.
229. 9:02And we took the first 30 minute as the
230. 9:04opening range, and the results were not
231. 9:07good. Profit factor of 1.09.
232. 9:10Basically break even, and but then, we
233. 9:14did some research, and we found
234. 9:16something.
235. 9:17On NQ, the first 30 minute of the day
236. 9:19usually sets the tone. So, price
237. 9:22picks a direction and runs with it.
238. 9:26On the DAX, it's the opposite. The early
239. 9:28open is a trap, okay? A false breakout
240. 9:32that fakes you out and then reverses.
241. 9:35So, anchoring right at the open was the
242. 9:37worst possible thing to do with this
243. 9:39particular asset. So, what we did is we
244. 9:42re-anchored it later. Instead of trading
245. 9:45that fake out, we waited for it to play
246. 9:48out
247. 9:49and set the opening range after that.
248. 9:52And what what happens on this chart, as
249. 9:54you can see,
250. 9:55as we push the anchor later, the
251. 9:58performance gets better. So, we have the
252. 10:00same strategy logic and idea. We just
253. 10:04let the German market do its little
254. 10:06manipulation first and then we take the
255. 10:09breakout. Okay? So, this actually made
256. 10:12it um
257. 10:14tradeable. Big change from 1.09 all the
258. 10:17way to 160 in profit factor.
259. 10:20So, transferability is done.
260. 10:23Now, the second test and this is the one
261. 10:25that surprised me. Um
262. 10:27the question is simple.
263. 10:29This strategy works beautifully from
264. 10:312021 all the way to 2026, right? But,
265. 10:34did it always
266. 10:36work? Or did we just maybe stumbled
267. 10:39across
268. 10:40a favorable regime in the last 5 years?
269. 10:43So, I pulled the data from the same
270. 10:45source, Data Bento, and I downloaded
271. 10:47from 2010 all the way to 2021. [music]
272. 10:51So, all the way to the end
273. 10:53or the start of the data set that we
274. 10:55used and ran the exact same strategy on
275. 10:58it. All right?
276. 11:00And look at this.
277. 11:02The profit factor, 0.88,
278. 11:05-48R,
279. 11:0744% win rate.
280. 11:10It doesn't just underperform, it loses
281. 11:12consistently for a decade straight.
282. 11:16And I want you to pay attention to this.
283. 11:19There's This is really crazy, to be
284. 11:20honest. Look where the failure ends,
285. 11:242021.
286. 11:25It is the moment our winning period
287. 11:27begins. So, the same strategy is a loser
288. 11:31for 10 years, and then right around 2021
289. 11:36and 2022, it flips and becomes
290. 11:39stable and profitable.
291. 11:42So, what the hell happened in this gap
292. 11:45right here?
293. 11:46Something must have changed. Now, there
294. 11:49are two ways to read this.
295. 11:52Theory one, something structural shifted
296. 11:54in the market around around 2021
297. 11:57that did that made this kind of strategy
298. 11:59start working. That's theory one. Theory
299. 12:02two, we're just in a favorable regime
300. 12:05and Q changed its behavior in the last 5
301. 12:08years
302. 12:09and it started to suit the strategy
303. 12:11perfectly, which means somewhere down
304. 12:14the line, maybe next year, maybe after 3
305. 12:17years, the old regime could come back
306. 12:20and this thing is going to stop working
307. 12:22again.
308. 12:24So, now I actually went digging and
309. 12:26doing some research on theory one and
310. 12:30I found something and here's the
311. 12:32simplest way that I can put it.
312. 12:35Around 2021 and 2022, there was an
313. 12:37explosion of
314. 12:40these super short-term options that
315. 12:42expire the same day.
316. 12:45I think you might have heard of them.
317. 12:46They're called the zero DTE.
318. 12:49The banks and market makers who sell
319. 12:51those options
320. 12:53end up on the other side of everyone's
321. 12:55trades and to protect themselves, they
322. 12:57are often forced to trade with the
323. 12:59market instead of against it.
324. 13:02So, when price goes up, they have to
325. 13:04buy. When it goes down, they have to
326. 13:06sell. So, instead of calming moves down,
327. 13:09they pour fuel on the fire. A move that
328. 13:12starts in the morning, it keeps going in
329. 13:14the same direction. Okay? And that's
330. 13:17exactly
331. 13:18>> [music]
332. 13:18>> what an opening range breakout is built
333. 13:21to catch. The whole range of the day all
334. 13:24the way to the end.
335. 13:25And the timing of when these options
336. 13:28wave
337. 13:30to cough lines up almost perfectly with
338. 13:32when our strategy switches from
339. 13:35consistently losing to consistently
340. 13:38winning.
341. 13:40Again, this is just a theory, not a
342. 13:42proven fact, okay?
343. 13:44But it's real.
344. 13:45And it shows on the chart.
345. 13:48So, this leaves us with a call. Do we
346. 13:51trade this edge,
347. 13:52which has proven itself for 5 solid
348. 13:55years,
349. 13:56and bet that the old regime stays gone,
350. 13:59or do we set it aside because that old
351. 14:01regime could absolutely return, and then
352. 14:03we're stuck with a strategy that bleeds
353. 14:06money, okay? But
354. 14:09there is a smarter way to handle a
355. 14:12strategy like this.
356. 14:14And this is the exact approach the best
357. 14:16systematic traders on the leaderboard,
358. 14:19as you can see, actually use.
359. 14:22They all use this approach.
360. 14:25It can take a strategy, even with an off
361. 14:28regime, and turn it into something that
362. 14:30you can generally rely on.
363. 14:32But
364. 14:33that requires a whole video for it on
365. 14:36its own, and it's exactly what [music]
366. 14:39the next video is going to be about,
367. 14:41okay? So,
368. 14:42so make sure that you subscribe so you
369. 14:44won't miss the next one. Okay? I'm
370. 14:46building this in real time, and the
371. 14:48value only gets better from here, but
372. 14:50don't just watch me do it, all right?
373. 14:52Get your hand dirty,
374. 14:54and go build your own strategies, okay?
375. 14:56Keep everything that we have covered in
376. 14:58this series in mind, and do your own
377. 15:00research, too, all right? Now, happy
378. 15:03trading, and good luck.