ANDREA UNGER WORLD CLASS TRADER ASIA TOUR · PDF fileandrea unger world class trader asia...

ANDREA UNGER

WORLD CLASS TRADER

ASIA TOUR 2013

the ONLY trader to win

the WORLD CUP TRADING CHAMPIONSHIPS®

3 YEARS IN A ROW

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Profitable Trading

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From Italy to AsiaAsiaAsiaAsia

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Inside Italy

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• Andrea Unger

• Born in 1966

• Degree in Mechanical engineering in 1990

• From 1992 to 2001 employed in technical-commercial

positions in multinational companies

• From 2001 Full time trader

About me

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Some success storiesEuropean TopTraderCupEuropean TopTraderCupEuropean TopTraderCupEuropean TopTraderCup1111°°°° place 61%place 61%place 61%place 61%World Cup Championship of Futures & Forex Trading®World Cup Championship of Futures & Forex Trading®World Cup Championship of Futures & Forex Trading®World Cup Championship of Futures & Forex Trading®1111°°°° place 672%, 115%, 240%, 82%place 672%, 115%, 240%, 82%place 672%, 115%, 240%, 82%place 672%, 115%, 240%, 82% FIRST Italian book on FIRST Italian book on FIRST Italian book on FIRST Italian book on money management money management money management money management

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What are we looking for?

•We try to understand the markets in order to take profit out of them

•We try to find a compromise between our daily life and trading

•We try to understand if trading is for us

Don’t dream this! Try to avoid this!

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What you think about the markets

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What the truth is more likely to be…

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One trader – two traders

Dr. Jekyll Mr. Hyde

• He sees what’s happening• He doubts about

himself• He thinks to apply a Stop Loss• He wants to build a plan for next trade

• He feels innocent about losses• He blames the

markets for going the wrong way• He blames brokers for “taking” our Stop Losses

• He leaves trades open as they “will get back into profit”

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Get rid of Mr. Hyde

•He wants you to be undisciplined

•Analyse your trades

•Don’t leave anything to decisions of the moment

•Use resident orders

•Plan your activity and if possible, once you placed your trades simply walk away

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Get rid of Mr. Hyde

•He wants you to trade with no plan

•Decisions are hard when calm, imagine what when under stress…

•Every event has to be planned

•Markets have to be studied before trading not during

•Also after trading you can look at the markets but only to understand where

your plan might have been wrong

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Get rid of Mr. Hyde

•He let’s you think you are on your way to become rich very quickly

•If you take some wins he let’s you think you are invincible

•He leads you to risk too much

•Risking too much is not the way to become rich, that is gambling

•Better rich slowly than poor very quickly…

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What is really trading?

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Trading

� There is no particular secret out there

� Markets need to be studied and discovered

� Trying, testing, trying, testing

� Diversification

� Appropriate risk

� Money management

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Are markets all the same?

� A trading approach is not obliged to work properly everywhere to be

considered good

� Some markets are good for trends and to be traded at breakout

� Some markets are very bad for breakout as they show a meanreversal

behavior

� To have a general look at some well known markets let’s run a simple

test

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Are markets all the same?

Our test consists in buying the breakout of previous daily high and

exiting the day after on the open, this is just for test purpose but it will

show interesting outcomes:

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Are markets all the same?

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Are markets all the same?

Results on EURUSD show it responds properly

to a breakout entry

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Are markets all the same?

Even better GBPUSD which could even be

tradable…

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Are markets all the same?

Bad results on GBPCAD, this shows a mean

reversal behavior

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Are markets all the same?

Even worse EURNZD which could be tradable

taking opposite entries…

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Are markets all the same?

MiniSP 500 future, typical mean reverting

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Are markets all the same?

DAX future, in spite of a strong correlation to

EminiSP500 shows the opposite behavior and responds well to breakouts

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Are markets all the same?

It does not depend on the long term trend,

same results are there for short entries on breakout of the low (here is

EminiSP500)

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Are markets all the same?

Here is short on GBPCAD

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Are markets all the same?

Short on EURNZD

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Are markets all the same?

Be careful, markets change! This is USDJPY

and it would tell us it is good for breakout trades…

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Are markets all the same?

Here is USDJPY from 2000, the last period shows

a change in the general behavior

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Are markets all the same?

Good for intraday trend

Dax futureGoldSilver

CrudeOilCopper

Good for overnight trend

Dax futureCommoditiesEURUSD

GBPUSDEURJPYAUDUSD

Good fo”CounterTrend”

miniSPBondsUSDJPY

GBPCADEURNZD

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Are markets all the same?

If you develop a method look for solutions in the direction of the type of

market you are intending to trade, don’t look for a breakout method on

EminiSP 500, it might be there but for sure it is much more difficult than

a counter trend approach on that market. In the same way don’t try a

countertrend method on EURUSD if you are not experienced, it is better

to look for a trend following a breakout.

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Discretional trades or Systems?

� You are directly involved in the

decision

� You can manage stress from

position deciding at the moment

� You got the feeling to keep

markets under control

� You don’t need to keep on

deciding

� If you trust the system you have

less stress

� You can build a good trading

plan

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To the end of Februar it

was only discretionary

Discretional trades or Systems?

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So which System?

• When is a System “good”?

• Are all “good” systems “good”?

• one System or more Systems? SYSTEM

Psychology

Commissions

Liquidity

Drawdown

Margin

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Markets Identification

Good for intraday trend

Dax futureGoldSilver

CrudeOilCopperFTMIB future

Good for overnight trend

Dax futureCommoditiesEURUSD

GBPUSDEURJPYAUDUSD

Good fo”CounterTrend”

miniSPBondsUSDJPY

GBPCADEURNZD

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Markets Identification

The same market is not always the same…:

Intraday behavior study:

Hourly Long Entry with 1 Hour trade length to study market BIAS

If there is a tendency found with above approach work with filters

Study yearly behaviour to see consistency

Use results as a strategy or as additional conditions

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Markets Identification

On EurUsd cycles of up and downs can be

seen, on GMT hours longs are fine at 2 am and 5 pm, shorts at 8 am and 10 pm

(*)

(*) Singapore Time is 8 hours ahead of GMT

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Markets Identification

These are the results with this simple approach

always in the market reversing positions at previously determined

hours

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Markets Identification

The equity is rising constantly which means the

approach is stable and consistent, it is a good basis for further work!

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Breakout development

CrudeOil is one of the most volatile markets, an intraday trend

following strategy can be looked for.

Simple breakout rules are used and and End Of Day Exit Closes the

positions together, eventually, with a Stop Loss

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Breakout development

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Breakout development

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Breakout development

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Breakout development

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Breakout development

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Breakout development

� Breakout entries work on 60 minutes CL

� The principle works but not always

� we delimited the hours during which we take entries

� Market conditions change during the day and the same type of entry

may loose strength in a different moment of the day

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Breakout development

Working all day does not add significant

profits, it adds only trades lowering the average trade

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Breakout development

The equity line is much less

“rising” then the case where we limited activity during determined hours of the day

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Breakout development

� In our strategy we used a Stop Loss of 1500 USD /contract

� Is it true the Stop Loss needs to be very small?

� Is it true no Stop Loss at all is better?

� Let’s run a test using Stops from 0 (no Stop Loss) to 3000 USD step

100 !

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Breakout development

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Breakout development

� We chose a value in between not aiming for the best return overall

� Tight stops don’t work! Market needs a bit of freedom to move…

� No stop or large stops actually lead to better results…

� No Stop could be acceptable in this strategy as there is a time stop in

place, yet in case we decide to apply position sizing based on the

largest loss we’d have some problems

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Breakout development

Here are the results

with position sizing on the version without Stop Loss

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Breakout development

Here are the results

with the same position sizing model on the 1500 USD Stop version

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Money Management means:

•Always use StopLoss

•Use goo Risk-Reward Ratio

•Use dynamic Profit Targets

HOW MUCH to put in each Position

Money Management means:

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How to work?

Martingale:To increase units after a loss and to decrease after a win

AntiMartingale:To decrease after a loss and to increase after a win

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Martingale:It is based on the psycological aspect that leads to thing a winning trade is hard to come twice or more in a row and so should a losing trade. There is the belief that

after a losing streak the probability of a winning trade increases a lot.

In reality every event has the same probability!

How to work?

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AntiMartingale:This method tries to take advantage of winning periods and to protect the capital in

losing periods, an easy approach is to use a constant percentage of risk.

To use for example a 2% risk on the capital is equivalent to increasing exposure after a win and to reduce it after a loss (after the win the capital increased so the

2% of it will, after a loss the capital decreased and so will the 2% of it).

Let’s see some effects flipping a coin

How to work?

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Head or Tail

100 flips and 1000 flips, starting capital 100 €

Martingale:

Betting percentace 1%, 2%, 3%, 4%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%The percentage is multiplied by a desired factor after a loss and brought back to initial

value after a win.

AntiMartingale:

Betting percentace 1%, 2%, 3%, 4%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50% e 51%

The percentage is kept constant throghout the entire series of tosses (as explained before this will increase the absolute size of the bet after a win

and decrease it after a loss

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Better winning%

leads to unusual

worse results

Head or Tail

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In this case better

win% lead to better

results

Head or Tail

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Martingale would make sense only in case of

infite capital; but would we waste our time here in that case?...

Martingale example

First bet

Second bet

Third bet

Fourth bet

No Money left

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Having seen the results an Antimartingale approach is chosenThe concept is based on using a fixed percentage of risk in every trade.

• Is there a better percentage?

• How can that be determined?

Kelly equation and “optimal f” yes or no?

How much?

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Kelly equation gives us a purely theoretical answer

R

WR 1*)1( −+K% =

Percentage of capital to use in every trade

Average win to average loss ratio

Winning % of the system

How much?

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Kelly equation looks at the statistical aspects of the system, it takes into account the average values and does not consider eventual peaks.A real world as trading is too dangerous to be “averaged” down, it would be better to

take into account the negative aspects of the system, take maybe the worst of them, and basing calculations on this determine which risked percentage would have led to the best results.To do this different percentage will be taken for calculation and the growth of the capital will be considered as the value to maximize, the percentage which maximises the end

capital is the so called “optimal f” where “f” stays for “fraction of the capital”.

How much?

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Optimal f is the value that maximises TWR

Pn – Profit of trade number “n”

HPRn (Holding Period Return of n) – Capital multiplier linked to trade number “n”

WCS (Worst Case Scenario) – Highest losing trade of the analysed data

TWR (Terminal Wealth Relative) – Multilplier of starting capital to determine end capital

f – fraction of capital risked at every trade

HPRn = 1 –f*(Pn/WCS)

TWR = HPR1 * HPR2 * HPR3*…HPRn

How much?

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The method works on a series of historical trades, it calculates the TWR with

various values of f and calls “optimal f” the value that maximises TWR

Kelly equations is based on statistical data of the system, averages calculated to give a global picture of the behavior of the strategy

If historical data and statistical data are identical also the Kelly Portion and optimal f will be the same

How much?

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Are these the number to use?

• No statistical value can perfectly picture the future

• No past behavior will replicate identically in the future

• Real trading is “disturbed” by external events

It is highly recommended NOT to use either Kelly portion or optimal f to

determine what percentage of the capital to use as risk exposure!

??? So what???

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Any newbie to trading, due to:

• inexperience

• Limited capitalization

• greed

Normally takes excessive risk.

Kelly criterion and optiomal f give us an idea of what extreme levels of risk can be, the values used in real life must be a small portion of those values yet it is important to identify where the “phisical” limits are

Are these the number to use?

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andrea.unger@oneyeartarget.com

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