Futures backadjustment

Hi guys! Andrea Unger here to talk about back adjustment. What is back ajustment?

You know, I work on futures and futures have a duration, a limited life. Some happen to expire every three months, some are monthly, it depends on the instrument, on the market. What happens, then? If we compare, for example, crude oil, and we look at the quotes of June compared to July, we see that June may be is trading here and July is trading up there, at a certain distance, okay? This might be above, below, I don’t enter in these details because this is not the purpose of this video, but there’s a difference. Now, the moves are more or less similar because they’re the same commodity at the end of the day, but there is a difference. So when we decide to trade on the next expire, because there are higher volumes or for any reason, our chart will have June here and then all of a sudden July here, because we changed. And this gap here, that you can see here, is there on our chart and is not a real gap. If it is for example 0.5, which makes sense in crude oil, there has not been a real jump of 0.5. So if we use this chart, which makes sense because it’s the real price which we saw and traded, if we make that moving average somewhere below somewhere, that moving average will take into account this gap, but this will false the calculation of the moving average because there’s not been a real gap there, so the moving average is not showing the real behavior of the market, because there hasn’t been any jump in the price there.

So what do we do, what do brokers and providers do? When they’re here, they take all the past data and they change the prices of the past so that these two points merge together and there’s no gap anymore. How do they do it? An easy way to do it is, “Oh, there’s a 0.5 gap? Perfect, I’ll add 0.5 to all the prices in the past. Or if this were here, they would subtract 0.5. Another way is to measure the ratio and to multiply. The addition is the simplest way, the variations at that moment, you can choose also, depending on the provider you have. What can the problems be? This is a solution if you build trading systems when you need a relation between prices, when you need to read the relation, the moving average, indicators… You have to do this. In some cases, if we have the next series below the previous one, it happens that if we go back in the past we might have negative prices. It happens, look at bonds and meats, there are situations where you have negative prices, and this is a nonsense obviously, okay? So you work with charts that are no longer real and that have nothing to do with reality because there are evident mistakes, you cannot have negative prices. Not yet, at least.

And then, another point is that if you look at the past, at let’s say historical top of the markets, okay? You have a price there, but has that price been back-adjusted? Let’s say it was 10 years ago, and every year for 12 times a year you had 0.5, for 10 years, you add a rough amount of over 10 points, so if this is the historical top, but that number will never be the real maximum price traded in the market. That number you see has never been touched because it is a number deriving from a mathematical operation. And this might be a problem depending on how you tend to use that information. So you must be aware of it. I do use back-adjusted prices, I have a feed provider adjust prices for me, I have to reload all past data whenever they’re adjusted because I have them on my client, I have to cancel all the data, if it’s on the server I just have to reload the charts and then add the back-adjusted prices, but you have to be aware. You want to use it because you need it for your trading system? Perfect. Be aware you might have negative data, and most importantly, levels that have never really been touched in the market.

This is it, stay tuned for more stuff. Ciao da Andrea Unger.

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Currency Market

Hi, guys. Andrea Unger here, and we’ll talk a little bit about currencies.

Talking about currencies, the first thing is: shall I work on futures, on currencies or on Forex? There are pros and cons on both. On Forex, if you are not extremely capitalized, you have opportunities to trade because of the scalability—the downsize scalability on Forex—you can trade with mini-lots, micro-lots; so, you can really adapt the position to the level of capital you have on your account with no problem. You can’t do that on futures, of course. You can trade one contract, not 0.1 of it. But futures is a regulated market. Forex is over-the-counter, and somebody might feel uncomfortable in trading on an over-the-counter market; but it’s up to you to decide.

In any case, this is the list, the first list that come into my mind on currency futures. Eurodollar, British Pound future, Japanese Yen future, Australian dollar, New Zealandese dollar, Swiss franc and Mexican peso. The most important and easy to trade in a systematic way are obviously Eurodollar and British Pound; they adapt to both trend-following and counter-trend strategies. I can tell you that in the latest years, they became a little bit more difficult to trade anyway. So, stay tuned on them, but consider that it’s easier to find good models that worked in the past and that are harder to produce profits today.

In terms of stops, normally if you develop intraday or overnight, you should stay somewhere around 100 pips—or 100 ticks if you talk about futures—which is a reasonable level. And you go down to 70 up to 130, but the area is around 100 pips. So, consider that, obviously, when you develop strategies.

Japanese Yen is an interesting market because sometimes it rises very, very largely. If you’re in the right position in that moment, you obviously enjoy it very much; but it’s not easy to find good models. Mostly, you should look for counter-trend stuff, but in any case, it’s not the easiest market to develop on.

A bit easier is Australian Dollar for trend-following. It became liquid enough now, so you can easily access it with no fear of not getting enough players. Same thing on New Zealandese dollar—in terms of liquidity it became better, but it moves worse than the Australian dollar. So, it’s more difficult to find working models on it.

Swiss franc has no cap anymore with Eurodollar, so actually it’s free. But it’s an interesting diversification in alternative to Eurodollar. Find some models: counter trend, trend following, but if you trade the Eurodollar, I would not include Swiss franc or vice versa.

Mexican peso is a nice market—very liquid actually—future, but it’s difficult to develop; it’s difficult to find a working model that fits that market or find something where the market responds in a positive way to our input. So, it’s here in the list because it’s important, but I would not consider it to develop too much because it’s not easy.

On the other side, another thing that you see, this is a limit in this. On Forex, you have many more pairs. Actually, think about Euro/Yen; there is no Euro/Yen here. Maybe there is a future but I’m not sure about that, but I think it’s not even considerable in terms of liquidity. But in any case, on Forex you have many more crosses. So, you can actually diversify that in a completely different way, and you have other kinds of opportunities to develop. So, that’s another reason why you could prefer Forex to futures. Again, if you feel comfortable in trading over-the-counter, fine; you can do it. But these are the regulated markets, these are the markets I personally focus on, and I think you have enough also here, even a little less than what you find on Forex.

But in any case, apart from the currencies, there are many other markets. You find them in our videos: some are there, some more are to come. Stay tuned. Ciao.


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Having a monthly income with trading

Brief Update:

I’d like to clarify a concept, as many asked me about it: I believe one can absolutely live and make money as a trader, but it will never be a 9-to-5 job. I wanted to dispel a myth that is too often propaganda and creates false illusions. Trading as a living is possible, but it does not mean, however, to bring home the salary each month, as there may always be losing months.


Hi, guys. Andrea Unger here. I want to answer a question that I’m often asked. “Can I get a steady income, monthly income from trading?” Or, “I want to do this because I want a monthly income from trading—additional or a salary.”

Okay, well, I wish to be sincere and to say that this is not very likely. I know that you’ll get disappointed listening to this, but if you imagine, you gain, 1 1 1, expect sometimes this. And you go back to the top. You don’t even know if you spent some money; probably, you did because if that’s your salary you need money to live with, okay?

So, actually, trading is difficult to manage to get a clear linear equity income just because it’s too difficult to set up the necessary tools to do so. There are strategies that show monthly and many months of such an equity line, okay? There are. And you find them on the internet; and you find them from people selling the method. But what happens suddenly when you don’t know is this. You’re lucky if it stops here, but it might go even down. So, actually, I’m not here to tell you bullsh*t, obviously. I just say that this is what’s likely to happen. The more this scenario is there, the higher the risk when things go wrong.

What normally happens is this. If you are a profitable trader, you go from here to here. Look at it. But, you see what happened? And if you need that money to live, if you need that money to pay school for your kids, pay food for your family, how do you feel here? You must be aware of it. You can perfectly do that, but you must be aware; this alone, or let’s say this, does not exist. It’s a pity. I would like it. I’m not saying it does not exist because I have not found it; I can tell you it does not exist because I have seen many of these the majority out of the profitable traders, and I have seen some of these. There are hedge funds who show this equity, so it is no secret; you can find them. They were able to do that, and all of a sudden, they did this.

Just because if a method, a technique allows to get this, that technique has insider risk of this kind. Again, you will not be holding that amount; you will not be on vacation. You will be trading. You must be aware, there is no technique, no method, no system to have a linear income month after month. Trading is a passion, trading can be a hobby, trading can be a job—can be a full-time job, you can trade for a living, but you will never get a linear income month after month. No salary; you will get, always, things like that. You must be aware; you must be ready to face it.

This is trading. It’s fine, it’s beautiful, but it will not be regular. If you want a regular income, you need to apply for a 9-to-5 job hoping that you can find it; but that is something that assure you, at the end of the month, your deserved salary. Trading is not linear. Either this, or this. And if you want this, be aware that here, somewhere, you could expect another heavy, even heavier than that, fall.

I know this is not what you wanted to listen to. I know you might now think that I am an idiot. Some traders will laugh at me, but I’ve seen these things. I know this is what happens out there. I have never seen anything like that, and I don’t think it really exists. Sorry about that. Stay tuned for more stuff to come. Ciao, from Andrea Unger.

 


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Trading Signals

Hi guys, Andrea Unger here, and sometimes I’m asked about trading signals.

And what my opinion is and so on. So obviously, you know that my main activity has been to teach you how to develop your trading systems because I believe that the way to develop your own stuff, you’re totally comfortable with it. And I push; expect to teach how to fish rather than give you a fish to eat.

The point is that if somebody really wants to purchase trading signals instead of developing his own stuff, there are a number of things to consider. First of all, who’s selling you these signals? You must trust that person; you must believe that that person is a decent person where you can trust anything they do and that he is not certainly cheating anyway. This is very important. It’s not easy because you can’t really know, personally, everybody, but it’s something you have to try to understand.

The second point, very important one, is what kind of signals are you getting? How are the signals delivered? If, for example, you get a signal suddenly in the day, I entered here a 10.42. Oh, now I have to go immediately and enter– So, I mean, if you are a worker in a factory and you are there on the machine, you cannot stop your activity to go and place the order. This is not doable; it’s not doable, so you have to be careful about what you’re purchasing because if you cannot use it the way it should be used, you will not take any advantage of it—even in case it were a good service because you cannot use it properly.

So, you have to cope with your daily activity and to check how you’re getting the signals, what kind of signals and to see if you can merge the two things together. If you can really see that you can use a service you’re purchasing 100% the right way, this is very important. And another thing is to analyze the service itself, what they promise. If you see sort of this equity line, well it would be very nice if it were true, but I have some doubts when I see these things. I mean, when it’s too good to be true, normally it is not. So, you have to start being suspicious about that.

One thing you have to try to check out is the average trade. The average trade is a measure of how robust the trades are when you apply them. So, if the average trade is too small, you know that any small change in the conditions in your application might change, completely, the outcome. If, for example, you trade the Eurobond and you have an average trade of €12? Guys, the Eurobond has a tick-value of €10. So, already, one tick is cancelling all the gain. Moreover, if commissions are not included, you have also to calculate that you have to add cost, trading costs from the broker and so on. So actually, you have to be careful about what you purchase; and if the average trade is not large enough, to be sure that if you don’t apply exactly the same conditions that you’re told, your trades will still get something out of that money [PH 03:43] you don’t reach to. Write [PH 03:45] everything in the worst way; that means entering at different prices that do not lead to any profits anymore. That is very, very important.

So actually, I still suggest to you to learn to develop your own strategies because once you develop your own strategy that is really fitting your characteristics, you’ll get a winning tool. But if you can’t because you’re not willing to, because you have no time—which is possible; you may have so much to do that you cannot really apply this. This is not something that you learn from morning to evening. You have to study hard, you have to trade and so on. So, it takes time. If you don’t have the time, but you still want to take advantage of the skills of somebody, you can consider purchasing his signals. But, again, be sure that what you’re purchasing is [inaudible 04:40]: who, how and what it looks like. Everything is very important to be evaluated.

If you can study, do it yourself. If you can’t, then you will take advantage of somebody. Like if I were to be investing in a fund, I want to take advantage of the skills of those people managing the fund—perfectly fine.

Check carefully. Check, carefully, what you’re getting out there, if it fits you and if it has been at least true. That’s it for now. Ciao from Andrea Unger. Stay tuned.

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Why, when I develop a strategy, I especially focus on the variation of the Average Trade

I received from many an interesting question I’d like to share with you:
 
Why, when I develop a strategy, I especially focus on the variation of the Average Trade? 
The focus of my analysis is on four key performance indicators: Net profit, Average Trade, Maximum Drawdown, and Periodical Analysis.
During each step of the development, the Average Trade is always the first parameter I look at to see if I’m headed in the right direction. If you aren’t aware, the Average Trade is simply the sum of total profits divided by the total number of trades.
The goal I try to achieve is its capacity. With capacity I mean the minimum required Average Trade to use trading system real-time, having a sufficiently soft cushion to mitigate the effect of any decays of performance or adverse situations.
This minimum value required is based on the market, the type of strategy and the tick size.
I’ll explain myself.
Working with a contract on a “small” market like Corn requires less capital exposure with respect to a much larger market as the DAX Future. This different exposure is also reflected on the minimum value of Average Trade needed.
Similarly, trading an intraday strategy that closes the positions at the end of the day doesn’t require the same Average Trade of an overnight strategy that keeps my position open for more than one day.
The minimum Tick is also an aspect which is not very often taken into account, but try to think of the different impact that a €10 tick slippage has on Eurostoxx50 w.r.t. a €12.50 tick slippage on Dax which is a market 4-5 times larger than the former.
Hence, the Average Trade must always be related to the risk taken, which is given by the capital exposed through the purchase of that particular contract (not just the margin), the time the position remains open, and the slippage.
Ciao,
Andrea

The Bet of Binary Options

Hi guys!

Andrea Unger here. And today I want to face a topic that sometimes leads to some arguments because it’s difficult to handle – Binary Options.

Binary Options you will have probably listened to some interviews of mine where I said that I don’t consider them trading and I confirm that I don’t consider Binary Options as trading. For a number of reasons, so don’t come and say that you want to trade Binary Options. You can do it but don’t come to me because I can’t help you and I don’t want to help you.

Binary Options is something where you bet 1 and if you win you go with, let’s say 0.85 win or something like that. You get 1.85 and get 1 back plus 85, something like that, maybe even 90 or maybe even more in some specific cases but you will never get something close to how much you paid.

So what does it mean? It means that if you have a 50/50 chance of guessing you are in a losing scenario. It is not fair, if you go to a casino apart from 0 you have more chances in red and black actually, but, ok if you have two bets, one you win and one you lose you go back with 15 cents less in your pocket.

Those who promote Binary Options state that ok you are the trader, you know something about markets so you will never go there with a 50/50 chance of guessing or getting the right direction of the market. Because you know that in certain specific situations support resistance, bond Japans, whatever you can imagine, you have a higher chance of 50% to know where the market will probably be in the next x minutes, hours. And that might well be true, I am not saying this is false. Let’s say you are an extremely skilled analyst and you get out of 10 bets, 8 right outcomes and 2 losses, only this scenario becomes a winning scenario for you. Congratulations this is fine and if you believe that this is your way that is perfect but again this is not trading. What is the problem?

The problem is that today these binary options no longer offer bets of a long period of time but today you get any kind of time horizon to bet on, minutes and think that when really there is no clue about markets anymore and in any case you are so close to gambling that you might miss the borders and start getting compulsive in this. When you can have a revenge after a loser just a couple of seconds after the first bet then obviously you are pushed into the game even more. And you might start getting so addicted to it then you go into a tunnel, into a direction where you did not want to be but you are unaware of getting there. This is a dramatic scenario but unfortunately it is true and you get sad stories in the news about people who got addicted and lost a fortune just because they could not prevent from betting more and more, having the opportunity to do so.

So as there are addictive games or gambling scenarios which we are all aware of, we must be aware that this can be one of those. So, this is not trading, this is a sort of gambling, if you want to be a gambler and if you feel comfortable with Binary Options then perfect. I will not hold you from doing that. You can do it and I hope that you will get an awful amount of money out of it. But don’t talk about trading because this is more close to gambling, it’s not trading, I cannot help you with trading, in solving the puzzle of Binary Options.

Stay tuned more things to come! Ciao!

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The Puzzle Reassembled

Here we go again guys! In the second post we arrived to the point when too much was really too much (you can read the first post here)!

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After identifying the need to diversify, my portfolio grew very much in number of strategies and, at a certain point, it was no longer possible to keep it under control efficiently! There were simply too many things to analyze and to consider: what was working and what not was hidden in the monster I created…

I understood I had to rationalize the approach, first to find a way to decide which strategies should work and which not and then to position size them properly.

Working on a portfolio I concentrated on the shape of the equity line of each strategy, I simply considered its most recent performance. After deciding how often I had to look into the portfolio, I fed my System with daily profit/loss figures of all the strategies and, on the decided period I looked into those numbers. I do that on a monthly basis but it can be done also every week (even though I don’t think this would lead to particular additional benefits).

During the check, I look into a longer-term performance (something around 12 to 18 periods, months in my case) and a shorter term one (3 to 6 periods), both shall be positive and the shorter term must also show an average monthly profit higher than the longer term. This means we want performing strategies and strategies that show a momentum in their profits in the most recent period.

All the strategies passing this criterion are valid to trade during the coming month, all those which fail will stay in incubation.

To position size each strategy, again daily profit/loss figures are used: the worst day of each strategy is taken as Worst Case Scenario and used to calculate the number of contracts after deciding the percentage of risk to take.

The numbers we get can be further adjusted (reduced) considering the max drawdown of each strategy and correlations among systems.

The math related to this is not conceptually difficult but it requires some time and, once it has to be applied to a whole portfolio, it leads to an enormous calculating effort, with standard tools it could even take several hours to get some results.

We have also to consider that our basket should be widely backtested to identify the best set of parameters to use (risk%, long period, short period, etc.)… To do this titanic task we decided to developed a dedicated software: TITAN!

TITAN get as inputs the daily profit/loss of all the strategies, we can be set different testing parameters, and as an output we get the list of strategies to trade during next period and the number of contracts for each of them, as simple as that! But incredibly effective!

A portfolio is important in terms of content (good strategies) and maintenance (all the above operations), this is where I am today, now it’s your turn!

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The Engine is Flooded

During the first post dedicated to Portfolio Management we went through the approach to systematic trading and how simple it became once I met an eye-opener: no complicated mix of indicators but a simple set of rules with clear orders in certain moments of the day.

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I won my first championship back in 2005 using a 4 blocks EuroFX Strategy and I put the same in place, together with an intraday trend following system on Dax future, an intraday trend following system on FIB future and a countertrend strategy on miniSP500 to face the world cup in 2008.

A great year winning with 672% gave me the will to continue and I started competing also in 2009 using the same mix of strategies. I did believe in diversification and that mix convinced me I was duly diversified.

After a good start I fell back to breakeven around June, half a year was gone and I was back to 0%! Yet other traders were showing much better percentages on the leaders’ board, what happened?

I analyzed the situation and realized soon that, what I believed was a good diversification, was actually a poor one. Dax and FIB futures are highly correlated and the systems I used on those instruments were also built on extremely similar models, so actually I was doubling my exposure on that kind of index futures. No harm in 2008 when money was flowing in from any window but now that the scenario was tougher, losers were also knocking on the door and those 2 strategies were, most often, losing together!

Well, you might argue that I also had a countertrend strategy on another very important index future: the E-miniSP, but looking deeper into that as well I realized it was not really helping.

The 2 trend following strategies were based on filters looking for a volatility contraction on the days before as that helped enormously in getting a high level of efficiency in the breakouts. The miniSP strategy, looking for countertrend entries, was based on exactly opposite conditions! The only real filter in there was actually a requirement to have enough expansion on the range of the day before we took trades. It becomes obvious to understand that if miniSP500 had a very large range on one day, it would be very hard to see Dax or FIB on volatility contraction, all those markets are somehow correlated and if there is big move in one of them that move can normally be seen also on the others. The result of this was that the countertrend trades were often taken on days where the trend following strategies were not working at all and those did trade when the countertrend system was filtered. Not the best way to diversify…

In addition to all the above the EuroFX strategy, in 2009, started suffering a lot and produced losses instead of the desired gains.

The main problem was not only related to markets but also to the way I was limiting my development, even though highly effective as said, it could not cover all market conditions and 2009, coming after the storm of 2008, was a very strange year to face.

I understood I had to look deeper into the ways to develop and also look into different markets. In 2009, I immediately reacted adding a countertrend strategy on DAX in the earlier part of the day (if breakouts were effective starting after 11 am why not trade countertrend before that time?) and I also found out that market was showing a mean reverting behavior between 3 pm and 4 pm (Central European Time) so that I built sort of a scalping strategy into that time window.

Those actions helped taking me to victory with 115% and I also started diversifying much more on my main account outside the championship, strategies were added and new markets explored. This is an extremely important way to approach system development and in the Trading System Supremacy course I try to pass this concept, changing market on the strategies I develop as examples.

Things were getting better and better, more and more strategies were populating my portfolio (no you don’t need a large capital as some markets like Forex, CFDs or miniFutures offer the possibility to diversify also with a limited amount of money dedicated to trading) and then, in 2011, a drawdown arrived… Nothing unexpected, not pleasant, but normal. But it was not the drawdown the problem: I diversified so much …that I was no longer able to analyze my portfolio to understand what was working and what not! A new problem and a new opportunity, which you will discover in next post!

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In Union There is Strength

Today I’ll be talking about my trading story and it will be full of notions which will be extremely useful to you, a real must to build your personal trading business.

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I’m trading today with more than 80 active systems but what path did I go through to be where I am?

My story in undoubtedly a success story even though I consider my greatest achievement to be still in the market, considering I saw so many things, and also, unfortunately, many sad stories of people who got ruined by trading.

Everything started back in 2001 and when I was trading Covered Warrants. It was sort of a videogame, trading inefficiencies, I even wrote a guide on how to trade those instruments: that was my first actual teaching experience in the trading world!

Being an Engineer and knowing Covered Warrants inefficiencies could not last forever, I started looking into trading systems development and my first approach was a great disillusion! In spite of all my efforts applying common rules found on the internet (mixing as many indicators as possible…) I could not find anything that worked!

It was a friend of mine, a great Italian trader, Domenico Foti, who gave me the right tips to develop systems that worked and it was actually easier than I could imagine. Every strategy was composed by block of rules, the market was allow to develop its movement for some hours and then, inside a time window, orders were placed. These were breakout orders to buy or sell at significant levels such as, for example, the high or low of the day so far. Stop Loss or end of the day close were the exit orders. The filtering rules were mostly based on volatility compression or expansion such as limiting the expansion over the last 5 trading days.

I got the confirmation to be on the right way when in 2004 I participated to a seminar by Larry Williams. He was trading in a different way from me but showed the same approach in terms of systems built with blocks of rules.

In 2005 I tried the first challenge: the European championship, and I achieved a 61% return over the 3 months of competition winning with a single system trading EuroFX future. This strategy was built using 4 different blocks of rules and positions were held overnight.

That achievement pushed me further to try the World Contest and that’s what I did in 2008. Facing a more challenging target and aware that a single strategy could not be enough for such a contest, I decided, after trading in a discretionary way for one month, to use 4 different systems, the EuroFX one, an intraday trend following strategy on Dax Future, an intraday trend following system on the Italian FIB index future and a countertrend system on miniSP500 (I chose this market to trade that system being miniSP500 a market with a strong meanreverting behavior).

That was a great year and a great result: 672%, which lead me to the decision to try to win three years in a row as nobody ever did.

The most logical decision was to continue with the mix of strategies that allowed me to win in 2008… So was 2009 also a triumph? Not really…

Just to recap: with greater targets we need also greater diversification, to catch more opportunities and to better balance our trading. A single strategy (even though a great one) is not enough and we need a mix to diversify as much as possible. This is true for a one year long contest but even more if we want to trade for a living!

That was my first step and it was really successful, but then something happened, what?…

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See you soon,

Andrea

How to Best Manage your Trading Systems’ Portfolio

A few days ago I asked for help – I had a few questions as I finalized our brand new portfolio management training course.

The response was overwhelming – we had HUNDREDS of responses to our survey, and they have helped us refine our product so it covers EXACTLY what our readers need to know about managing portfolios of trading systems.

Reading your answers to the survey gave me a sense of incompleteness and anger, not towards you of course but towards that part of the trading industry that talks about misleading information, which is often also WRONG information… and wrong information in this business is very dangerous!

So I decided to react by clarifying some, often twisted, concepts. That’s why I just finished a report on some fundamental issues related to portfolio management, issues I believe are key for you all.

Here they are:


The 21 secrets to better manage your Portfolio of Trading Systems

  1. How should I consider the sum of the DD (Drawdown) of each TS (Trading System) compared to the portfolio DD? If I have 10 TS with max DD of 1% each, is it correct to say that the max DD for the portfolio is 10%?

The worst possible case is of course the sum of all Drawdowns, but that event is highly uncommon.

It all depends on when each TS Drawdown happen. If the strategies’ mix is built taking into account multiple DDs happening at the same time, the cooperation between strategies should result in a portfolio DD much better than then absolute Worst Case Scenario.

  1. Which portfolio would you build in case of markets with low volatility?

Trading Systems are developed to be able to tackle all market conditions, there are NO appropriate settings for low volatility markets phases because, if it were possible, the problem would then be to identify those phases. Generally speaking, it’s best to have a portfolio with maximum diversification so you can combine strategies that perform well in calm markets with others that perform better in high volatility periods. Of course each strategy, if properly built, should resist in all phases without extreme losses.

  1. To correctly manage a TS portfolio, do I need to know how to code?

It’s not needed but it helps. There are tools available you can use even if you can’t code and new code doesn’t have to be written. Of course if you learn the skill the job becomes easier.

  1. Which platforms/tools do I need to analyze and manage a TS portfolio?

You can start with an Excel sheet or use dedicated software. Amibroker has probably the best instrument but it’s not easy to learn. MultiCharts also has a tool to merge strategies, and even if it has some limitations, it offers a good planning tool. Unger Academy uses a proprietary software that, taking the TS daily profits as input, allows a detailed analysis of what could be the best mix to beat the markets.

  1. If I’m a discretionary trader, can I still apply the theory of portfolio management?

Yes, in theory… In practice, it’s hard to do so without objective data. Also consider that it’s implicitly harder to diversify a portfolio if you trade discretionally, because as human beings the amount of markets and TS that can be analyzed (and traded) in a certain amount of time is limited, hence decreasing the amount of effective diversification.

  1. Are there mechanical ways to stop a strategy that’s not performing as it should?

Yes, many ways! And no way… Common sense is what should prevail. Consider first you need to have A rule.

As an unrelated example, a rule to check your weight could be to go on a diet this week if you weigh 1 kg more than the previous week. This is a mix of common sense and a (more or less) mathematical formula, that have no scientific base but that does the trick. In trading it’s the same, THE rule to know when a TS should be stopped does not exist, but it’s solid common sense to have A numeric rule so you can make decisions based on that instead of gut feeling of the moment. In any case, rules are generally based on a degradation of performance with respect to the average system performance.

  1. Is there a minimum and maximum numbers of TS to have in a portfolio?

The minimum could be 2…

There’s no maximum except the one based on how much capital you have at your disposal to trade with.

  1. With maximum diversification, is it possible to have a portfolio that never loses money?

Unfortunately that’s very very difficult and shouldn’t become an objective (or you’ll get frustrated and lose your motivation). In trading it’s important to have a mid-long term view and thinking on short periods (weeks) it’s a way to proceed that is too random. The only valid rule is to never lose too much so that you can always keep playing!

  1. Is it possible to use an approach based on starting/stopping a TS based on its equity line?

It’s definitively possible and it’s one of the methods mostly used by many traders.

  1. Can I use different TS based on different logics on only one instrument?

Yes, absolutely. It’s the best way to proceed. But beware of how the platform works: don’t get confused with the correct amount of contracts which should be placed at the broker’s side. In many cases one strategy can be long, and the other short, so the net position for the broker is flat.

  1. Is it better to have one TS working on many instruments, or many TS on one instrument…

… download the last 11 secrets here