Andrea Unger Asia Tour Slides

ANDREA UNGER

WORLD CLASS TRADER

ASIA TOUR 2013

the ONLY trader to win

the WORLD CUP TRADING CHAMPIONSHIPS

3 YEARS IN A ROW

2Profitable Trading

3From Italy to AsiaAsiaAsiaAsia

4Inside Italy

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

7Some success stories

European TopTraderCup

European TopTraderCupEuropean TopTraderCup

European TopTraderCup

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place 61%

place 61%place 61%

place 61%

World Cup Championship of Futures & Forex Trading

World Cup Championship of Futures & Forex TradingWorld Cup Championship of Futures & Forex Trading

World Cup Championship of Futures & Forex Trading

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11

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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

8What are we looking for?

We try to understand the markets in order to take profit out of themWe try to find a compromise between our daily life and tradingWe try to understand if trading is for us

Dont dream this! Try to avoid this!

9What 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 whats 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

Dont 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 lets you think you are on your way to become rich very quickly

If you take some wins he lets 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 lets run a simple

test

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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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Results on EURUSD show it responds properly to a breakout entry

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Even better GBPUSD which could even be tradable

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Bad results on GBPCAD, this shows a mean reversal behavior

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Even worse EURNZD which could be tradable taking opposite entries

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MiniSP 500 future, typical mean reverting

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DAX future, in spite of a strong correlation to EminiSP500 shows the opposite behavior and responds well to breakouts

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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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Here is short on GBPCAD

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Short on EURNZD

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Be careful, markets change! This is USDJPY and it would tell us it is good for breakout trades

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Here is USDJPY from 2000, the last period shows a change in the general behavior

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Good for intraday trend

Dax futureGoldSilverCrudeOilCopper

Good for overnight trend

Dax futureCommoditiesEURUSDGBPUSDEURJPYAUDUSD

Good foCounterTrend

miniSPBondsUSDJPYGBPCADEURNZD

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If you develop a method look for solutions in the direction of the type of market you are intending to trade, dont 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 dont 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 dont 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

DrawdownMargin

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Markets Identification

Good for intraday trend

Dax futureGoldSilverCrudeOilCopperFTMIB future

Good for overnight trend

Dax futureCommoditiesEURUSDGBPUSDEURJPYAUDUSD

Good foCounterTrend

miniSPBondsUSDJPYGBPCADEURNZD

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The same market is not always the same:Intraday behavior study:Hourly Long Entry with 1 Hour trade length to study market BIASIf there is a tendency found with above approach work with filtersStudy yearly behaviour to see consistencyUse results as a strategy or as additional conditions

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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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These are the results with this simple approach always in the market reversing positions at previously determined hours

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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 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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Working all day does not add significant profits, it adds only trades lowering the average trade

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The equity line is much less rising then the case where we limited activity during determined hours of the day

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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?

Lets run a test using Stops from 0 (no Stop Loss) to 3000 USD step 100 !

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

Tight stops dont 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 wed have some problems

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Here are the results with position sizing on the version without Stop Loss

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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).

Lets 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

RWR 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 nWCS (Worst Case Scenario) Highest losing trade of the analysed dataTWR (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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THANK YOU FOR COMING

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Andrea Unger Asia Tour Slides