ANDREA UNGER
WORLD CLASS TRADER
ASIA TOUR 2013
the ONLY trader to win
the WORLD CUP TRADING CHAMPIONSHIPS®
3 YEARS IN A ROW
2
Profitable Trading
3
From Italy to AsiaAsiaAsiaAsia
4
Inside Italy
5
6
• 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
7
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
8
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!
9
What you think about the markets
10
What the truth is more likely to be…
11
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”
12
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
13
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
14
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…
15
What is really trading?
16
Trading
� There is no particular secret out there
� Markets need to be studied and discovered
� Trying, testing, trying, testing
� Diversification
� Appropriate risk
� Money management
17
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
18
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:
19
Are markets all the same?
20
Are markets all the same?
Results on EURUSD show it responds properly
to a breakout entry
21
Are markets all the same?
Even better GBPUSD which could even be
tradable…
22
Are markets all the same?
Bad results on GBPCAD, this shows a mean
reversal behavior
23
Are markets all the same?
Even worse EURNZD which could be tradable
taking opposite entries…
24
Are markets all the same?
MiniSP 500 future, typical mean reverting
25
Are markets all the same?
DAX future, in spite of a strong correlation to
EminiSP500 shows the opposite behavior and responds well to breakouts
26
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)
27
Are markets all the same?
Here is short on GBPCAD
28
Are markets all the same?
Short on EURNZD
29
Are markets all the same?
Be careful, markets change! This is USDJPY
and it would tell us it is good for breakout trades…
30
Are markets all the same?
Here is USDJPY from 2000, the last period shows
a change in the general behavior
31
Are markets all the same?
Good for intraday trend
Dax futureGoldSilver
CrudeOilCopper
Good for overnight trend
Dax futureCommoditiesEURUSD
GBPUSDEURJPYAUDUSD
Good fo”CounterTrend”
miniSPBondsUSDJPY
GBPCADEURNZD
32
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.
33
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
34
To the end of Februar it
was only discretionary
Discretional trades or Systems?
35
So which System?
• When is a System “good”?
• Are all “good” systems “good”?
• one System or more Systems? SYSTEM
Psychology
Commissions
Liquidity
Drawdown
Margin
36
Markets Identification
Good for intraday trend
Dax futureGoldSilver
CrudeOilCopperFTMIB future
Good for overnight trend
Dax futureCommoditiesEURUSD
GBPUSDEURJPYAUDUSD
Good fo”CounterTrend”
miniSPBondsUSDJPY
GBPCADEURNZD
37
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
38
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
39
Markets Identification
These are the results with this simple approach
always in the market reversing positions at previously determined
hours
40
Markets Identification
The equity is rising constantly which means the
approach is stable and consistent, it is a good basis for further work!
41
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
42
Breakout development
43
Breakout development
44
Breakout development
45
Breakout development
46
Breakout development
47
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
48
Breakout development
Working all day does not add significant
profits, it adds only trades lowering the average trade
49
Breakout development
The equity line is much less
“rising” then the case where we limited activity during determined hours of the day
50
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 !
51
Breakout development
52
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
53
Breakout development
Here are the results
with position sizing on the version without Stop Loss
54
Breakout development
Here are the results
with the same position sizing model on the 1500 USD Stop version
55
56
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:
57
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
58
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?
59
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?
60
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
61
Better winning%
leads to unusual
worse results
Head or Tail
62
In this case better
win% lead to better
results
Head or Tail
63
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
64
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?
65
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?
66
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?
67
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?
68
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?
69
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???
70
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?
THANK YOU FOR COMING