You asked whether the edge is real. It is. That is not the same as it being safe to trade, and the difference is where this report spends its time.
Verdict
Paper desk: approved.Funded eval: denied.
Realistic expectancy — 1 NQ
$33,129 / yr
Survives $1k trailing drawdown?
No
The signal is directional and it is not noise — it cleared 3 of 3 out-of-sample folds. But 79% of the entire P&L came from 2 of 11 months, and a $6,924 peak drawdown ends a $1,000-trailing evaluation long before the good months arrive. Trade it on your own account. Do not put an evaluation fee behind it.
// 01 — what you submitted
Your idea, in your words
"When NQ runs way ahead of ES — like the spread blows out well beyond normal — I want to short NQ and ride it back to fair value. Feels like it works best when the dislocation is extreme, not just mildly stretched."
Before testing anything we froze that into a spec you approved. Once frozen, the parameters below could not change — every result in this report was produced by exactly this configuration.
Parameter
Frozen value
Why
Instruments
NQ vs ES (front month)
Automatic contract rolling on CME expiry
Signal
hedge-ratio spread, W200 rolling window
200-bar window to define "normal" spread
Trigger
z > 3.5, transition only
Fires on first crossing, not every bar it stays stretched
Direction
SHORT NQ
Your stated direction; the long side was tested separately
Session
All sessions
You did not restrict; we tested splits anyway
Brackets
derived from training data only
TP/SL from train-fold MFE/MAE percentiles — never from test
Costs
$1.00 round-turn + spread crossing
Shorts enter at bid, exit at ask
// 02 — how it was tested
Eleven months of out-of-sample, walk-forward
Tick-by-tick simulation. The engine sees data sequentially and strategies are only ever handed history — never a bar that has not happened yet. Brackets are re-derived on each training fold and applied blind to the following test fold.
151
OOS trades
62.25%
Win rate
3 / 3
Folds profitable
10.74
Calendar months OOS
On its face that is a strong result, and plenty of vendors would stop here and sell you the number. We then spent the rest of the engagement trying to break it.
// 03 — the risk department
Five attempts to kill it
1 — Concentration: does it rest on a couple of lucky months?
Failed
Yes, badly. March 2026 alone produced $12,907 of the $29,650 total — 43.5%. Add December 2025 and just 2 of 11 months account for 79.0% of every dollar.
Strip those two months and the remaining nine annualise to $8,561, not $33,129. Four of eleven months lost money.
2 — Parameter stability: does it want the same trade each fold?
Failed
No. The take-profit the training data asked for ranged from 15.44 to 63.00 points — a 4.1× spread — and the risk profile inverted completely across folds.
Fold 2 wanted a wide target and tight stop (TP/SL 2.43, 30-minute hold). Fold 4 wanted the exact opposite (TP/SL 0.37, 240-minute hold). A stable edge does not change its mind about what it is. This looks like a signal being re-fit to each regime rather than one persistent effect.
3 — Prop-firm drawdown: would it survive an evaluation?
Failed
No. Peak-to-trough drawdown of $6,924, with a single worst day of −$3,458. Against a $1,000 trailing drawdown you are eliminated many times over, and the worst day alone ends the account on its own.
4 — Direction: is the short side actually the edge?
Survived
Yes — your instinct was right. We ran the mirrored long (z < −3.5) on the same data. It managed only 1–2 of 3 folds positive versus 3 of 3 for the short. The asymmetry is real: NQ dislocating rich mean-reverts more reliably than NQ dislocating cheap.
5 — Resampling: is the result robust to reordering?
Partial
Bootstrapping the monthly P&L (20,000 resamples, seed 20260801) leaves it profitable in 97.3% of draws — the edge is not a coin flip.
But the spread is enormous: 5th percentile $4,421, median $32,237, 95th percentile $64,999. A 15× range between bad luck and good luck means the headline number is close to meaningless as a forecast for any single year.
// 04 — the picture that matters
Where the money actually came from
Monthly out-of-sample P&L, 1 NQ contract, $1.00 round-turn. Two bars carry the strategy. Nine months of trading produced $6,236 between them.
// the honest read
If you had traded this from July 2025 you would have spent five months roughly flat-to-losing before December paid you. Most traders do not survive that stretch psychologically, and no evaluation account survives it mechanically. The edge is real; your ability to still be trading when it shows up is the actual constraint.
// 05 — what we would do next
If this were our capital
Do not run it in an evaluation. At $1k trailing drawdown the maths is settled — a $3,458 losing day cannot be survived. Any eval fee spent on this configuration is a donation.
Investigate what December and March had in common. Both were high-realised-volatility regimes. If the edge is conditional on a volatility state, a regime filter converts a lumpy strategy into a selective one that sits out the dead months.
Fix the bracket instability before adding size. Refit on a rolling basis with a single stable bracket rather than per-fold optimisation, and accept a lower headline number in exchange for one you can actually rely on.
Forward paper for 30 days minimum. The gate is not optional on our platform. Live export unlocks after 30 sessions of forward paper, with daily replay against the frozen spec.
Consider the US-session variant as a comparison. Restricting to US hours gave a 70.2% win rate over 57 trades — fewer trades, cleaner behaviour, but the same drawdown problem remains unsolved.
// 06 — check our work
Provenance
Every number above traces to a file. The monthly series sums to $29,650.25, matching the recorded total exactly; the three fold trade counts sum to 151, matching the recorded OOS count. If you want the raw trade ledger, ask and we will send it.
signal → hedge|W200|t3.5|all|S (proper walk-forward, train-only brackets)