DBK Trading System

Deutsche Bank is one of the biggest banks in Europe by total assets. During the last years, it has been struggling to adapt to the new low-interest rate environment.The losses from the financial crisis were very big. In addition, the big provision for fines and lawsuits drove its profitability to the negative side. Therefore, its shares have been dropping these years. In response to these problems, John Cryan, Deutsche Bank CEO, decided to implement a restructuring plan some years ago. 

    Source: TradingView, Deutsche Bank shares, daily

Even with the above, I believe that this bank offers value from a trader or investor’s perspective. Analyzing this bank is not the purpose of these post.  

Trading System Intro

I consider Deutsche Bank as one of the most important banks around the world and I believe it will be a reference in the coming years after resolving its problems. This is why I created a short-term trading system to buy the weakness of the stock. The system is based on risk management, the maximum risk taken per trade is 1% while the take profit is set at 10%. With these numbers in mind, we can expect a lower rate of successful trades.

Backtesting from the 30/10/2013 to 17/11/2017

Let’s see the theoretical behaviour of the system

     Statistics of the DBKT trading system, own elaboration using R Programming

The system makes 84.20 EUR per trade on average which is 0.8420 EUR per share considering that it trades 100 shares each time.  The distribution of returns is not as good as I would like it but I expected this problem before I tested the system. The biggest profit was 2290.05 EUR. The worst trade lost 478 EUR. It would have made 5304.77 EUR profit which is the equivalent to 26.52%. It’s a modest return but as we will see later it’s adjusted by risk. The Sharpe Ratio is good.

       Return’s distribution, own elaboration

Sadly some of the returns were worse than the max loss of 1%. This was due to the gaps in the opening. There are ways to solve this problem but it’s interesting to see this kind of problems in order to avoid miscalculations in the future. 

     Max drawdown and performance of the system, own elaboration

As you can see the worst loss was 2773.79 EUR which was the equivalent of a 12% loss for the portfolio.  However, the rise of following days offset the loss and drove the system to profitability. After that, the system was steady without important changes.

      Portfolio evolution, own elaboration

To sum up

We have seen a simple trading system applied in DBK equity. I would like to remind that analyzing this company wasn´t part of this post. I've chosen this security for its volatility. This system hasn´t been improved and it had some problems addressed above. The performance is good considering the 12% max drawdown. I've played with different portfolio sizes before publishing this post but I thought that the 20000 EUR portfolio was the best in terms of risk-reward. A 10k EUR portfolio would have returned 40% profit with 23% max drawdown but I prefer smaller drawdowns. 

I hope you like it.

Have a good trading!!

Disclaimer

I wrote this article myself, and it expresses my own opinions that shouldn't be used as a trading advice. Trading carries considerable risk due to the high leverage involved