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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The Grains Market

Hi, guys. Hi from Andrea Unger, and we want to talk today a little bit about grains—futures on grains.

These are interesting futures, and they allow you to develop interesting strategies, especially Soy Beans. Soy Beans is a market that is opened to different approaches really, you can develop trend-following, counter-trend, BIAS—it’s opened to many, many kinds of approach.

Interesting is also Corn for different reasons because Corn, as you can notice, it does not have a large dollar expansion during the day. The dollar volatility during the day is not that high. That means you can trade it with tighter stop losses; and, in this case obviously, it can be good for people who dedicate smaller capital to trading, simply because you can easily trade Corn with a stop loss of, let’s say, $400. And $400 measured on an account size of $20,000 has a smaller impact in percentage. So, you can actually adapt this to a risk profile that is not extremely aggressive. So, it’s good for that.

As said, Soy Beans is good for many kinds of approaches. Corn, it’s a little bit harder to find something that works. Normally, you’ll end up with medium-term trend-following strategies—which are fine. But consider that you might obviously have prolonged periods of drawdown in these types of strategies. So, if you’re fine with it, perfect; if you don’t feel comfortable with these kinds of strategies, consider that Corn might not be your first choice.

Wheat is a nice market, but believe—at least Andrea Unger, me—I did not find many edges on this market. It’s a market that moves in a, let’s say, bad way. I mean, I don’t say Wheat is guilty for my failures, but I believe it is not easy to find good trading systems to work on Wheat, at least I’m not able to do so. If you are able, perfect; send me the systems, I’ll put them to work. But it’s not the first market to concentrate if you start your adventure in the trading systems development environment because it’s not well responding to the most common movements that you might use.

Soybean Meal and Oil are 2 minor sectors, 2 minor markets, which are good for diversification. I don’t think they are really necessary to focus on. You already have enough here– Obviously, diversification is very, very important. I always say it’s the first thing to consider when you want to trade for a living, but not necessarily you have to look everywhere. So, these two markets are part of the family. They are liquid enough, even though they are much less liquid than these others, but they are not even the easiest to develop on. So, I would say if you look for something, look for systems on Soy Beans and, maybe, on Corn—trend following, medium-term, but consider that it’s not that easy. Better forget or keep, as a second choice, Wheat because it’s not the best market out there to develop systems on.

That’s it; that’s it on grains. Stay tuned. We go ahead with other markets soon, ciao.

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The Energy Market

Hi guys, hi, from Andrea Unger.

Today I want to talk a little bit about Energy Futures.

Energy futures, these are the four main futures available to trade with systematic trading, there are others, but these are those you should focus on, when you decide to develop something on energy futures. First of all, they’re all on the NYMEX.

Crude oil, gasoline, heating oil and natural gas. All these are pretty much liquid. So good futures. A part of these two (CL & NG), in the night section they are not so liquid.

So, if you want to develop something throughout the 24 hours available to trade, focus on crude oil, consider second place natural gas and consider gasoline and heating oil better only for the day session because entries during the night session might cause higher degrees of slippage, which obviously we don’t desire. These are markets with good characteristics for systematic trading.

Crude oil responds well to many kinds of approaches, so it works well with trend following but also counter-trend and bias, so you can really develop plenty of strategies on crude oil and get a good basket of trading system.

These two are good even for intraday breakout systems but, in any case, for trend following are very good because the lack of liquidity leads to higher inefficiency so when the trend starts is more right to continue.

Natural gas responds well to countertrend even though we know there has been a huge downtrend but, in any case, it tends to go back to a mean reversion behavior sometimes, so you can try to find something in that direction when you develop your system.

In terms of stop losses, I might say 1000-1500$, are normally good for all of these. On intraday and a bit large if you go overnight but more or less this. You can also find something with, let’s say, 600-700$.

Obviously that kind of strategy would be hard to work in a clean way, because this market needs a certain degree of room to move. That’s a matter of fact. In any case, all these are good markets to develop systems on.

I hope to see your systems.

Stay tuned, we get more stuff on other markets.


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The Metals Market

Hi from Andrea Unger. Today I want to talk about Metals, futures of metals and I put this list here so you can see what I mean.

Obviously you know about gold the first precious metal you could think of, silver, platinum and copper.

These are all interesting instruments to develop systems. In particular gold is a very good market for traders; it’s a market where you can develop trend-following systems, countertrend systems, bias systems, especially bias, believe me, there are very interesting opportunities on gold to discover and to take advantage of.

So gold is one of my favorite instruments to trade with trading systems. Silver is also very good but much more nervous compared to gold and it’s harder to find a good model that fits silver.

So if you’re starting now developing systems, start with gold and forget about silver. And consider also that silver is a very expensive Market, and also because of the moves that it has. Sudden and strong moves. Your stops that have to be wide enough to face this Market will be or have higher chances of being hit.

So silver is a market where you can get a certain degree of frustration when you develop a system so I will not put it as as first choice. So, certainly gold and eventually Platinum, which year after year is becoming more interesting. The only drawback on Platinum is the fact that, I might say, it is highly correlated to gold so if you have a model and apply that model to gold it will be useless to add the same model on Platinum in your portfolio because it would actually over expose yourself to probably a similar move so at one point you will have to choose between the two.

There is a sort of inverted correlation in the moves of copper to gold at least in the short-term, so Copper is another Market that is interesting and responds well to countertrend, mean-reverting moves, but also trend-following… so… actually, believe me, copper has very explosives and sudden moves.

The point is that these moves often end up with a huge retracement and that’s why I mentioned the counter trends because on the excessive moves you have rebounds and the point is that we can take advantage of both so when you start developing on copper try to manage your position in the best way possible. Investigate what the best way to management the position could be because it offers incredible opportunities but it is also a very nervous market so you have to be pretty much skilled to trade it.

Gold for sure Number One, Platinum, don’t forget copper, keep silver for your later days.

Gold on intraday should work with stop loss of at least $1,000 but 1,500 or 2,000 is better; Platinum is similar and Copper can be traded with stops starting from 700-800$ up, and all these are linked to the characteristics of the moves of the market: if you use tighter stops you waste your strategy because you don’t adapt anything to the way that market moves.

In case you really love gold you could consider micro gold to trade instead of gold if you want to dedicate a lower level of risk. Don’t use mini gold because there is not much liquidity, micro gold is much better, you could choose that one, is a good market to start with smaller capitals.

That’s it! Stay tuned for other Markets, Ciao from Andrea Unger.

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