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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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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Larry Williams’ Oops

Hi, guys. Hi from Andrea Unger. I want to talk today about a well-known setup: the Oops from Larry Williams.

Larry Williams is a great trader, and he’s really a great student of markets. In my opinion, he’s really incredible. He applies a lot of energy in studying what the markets do, in figuring out how to beat the markets. And obviously, he is successful in that. One of his best-known setups is the Oops. So, let’s go in depth into this; it’s well-known so… don’t get me wrong, Larry, if I show it here in this video.

Let’s say this is the daily bar of yesterday, for example: open, evolution, close, and we are, today, in front of the opening of the markets. And let’s now imagine that the market opens here in gap-up. Again, gap-up is when the open is higher than the highest point reached yesterday, or a get-down is if it is lower than the lowest traded point of yesterday. So, the market opens there. This is a strong market, a market showing strength. Look there, such a high open. This is a very strong market. And this market, as it is showing strength, it is supposed to go up; and it probably will, but if for some reason both start falling, once they reach the highest level of yesterday, it’s like they say, “Oops, I was wrong.” And in this case, here we enter short. We enter short because there we imagine that the market—the players in the market—will realise that they are absolutely not that strong; no, no, they are weak. And then we’ll go down—back, back down somewhere. Perfect.

Once we enter, we obviously set somewhere a protected stop because we need a stop-loss, and with this a longer stop-loss is something that needs to be evaluated depending on the market we are trading. Then, how to close this? Larry, again, proposed his bailout exit, the first profit profitable open. So, we stay in position. The first day where the open is in profit, so if it opens somewhere below the entry level because we are short, we will close the trade. Just because open of markets is from the public normally, and the close is from the pro. So, public sometimes make mistake, and if we have an edge in the open so that we are in profit, we better take it.

This is the basic concept behind this. And this goes on day after day until we get this profit on open or, obviously, the bad case if we are stopped out, okay? We can also close at the end of the day, but these are other kinds of close. That’s the best one, and even though it sounds weird, believe me, it’s a very effective close on a position. Larry also made some tweaks to it, but you might go and ask Larry about them; I’ll just give you the basic version here.

Now, does this work? Yes, it does. But in today’s market, this very specific setup is rare because we have markets that trade 23 hours a day. So, in a one-hour close, it’s hard to find such a situation where we have a heavy gap in the open—maybe after the weekend, but normally it’s not there. But if we take markets such as the Dax in Europe for example. Dax ends at 10 PM and opens, again, at 8 AM the day after. So, we have plenty of time where anything can happen. That’s a market where this setup works very, very well and effectively.

Even better if you give a minimum distance to this gap so that it is significant, maybe 15-20 ticks—something like that. In that case, you get a very effective setup that works, has been working for years and still goes on working. Have a look at this; look here for other setups, stay tuned, ciao.

 


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Martingale in Trading

Hi, guys, Andrea Unger here. And I want to discuss today about Martingale/anti-Martingale—not the way I did in my book. You know, I published a book where I talk about position sizing and money management, and in that book I strongly suggest to use an anti-Martingale approach, which means that you increase your size when your account is bigger, larger, and if you reduce your account due to a number of losses, you have to decrease the size of the next trade.

This makes sense; I demonstrated with numbers that it makes sense. But sometimes, you stumble across strategies built with Martingale; and they say Martingale, greed or things like that to make money and so on. So, are these all wrong? Not necessary, and I want to show you something.

Let’s imagine you have an approach where you say, “Okay, I buy one here, market is falling, I buy two here and here I buy three, okay? And so on. So, the Martingale that sometimes is proposed if you go on buying, increasing the size, and they say “no stop-loss”; the stop-loss is the size of your account. Which, if you read it properly, is dramatic. It means that you lose all your money. They don’t tell it that way; they say it in a different way so that it sounds more professional. By at the end of the day, the result is the same. You have no longer money.

But now, let’s say that I want to have this Martingale approach, but I want to have it controlled—under control. I buy one here, two, three; but at a certain stage, I want to limit the maximum number of contracts that I am adding up. And in this case here, for example, I have one, two, three… I have six contracts. So, if I say I’m ready to buy, in a falling market, at different levels, one, then two, then three contracts, but at the end of the day, I don’t want to have more than six contracts in my account; so, I control the maximum number of contracts and once I have six contracts, which will have more or less an average here—more or less, okay? From this level, I calculate a stop-loss level where I will close my position of the six contracts, and where the loss that I’m suffering is still in line with my risk profile.

In this case, it’s true that I have a Martingale approach, but I still have, under control, the losses of the approach. I’m keeping them smaller than the maximum level I can allow to lose in a single operation—where operation is the small number of all the edges. There might be even more, but this is an example just to get you with six contracts maximum.

So, actually, Martingale, no or yes? Yes, no-ish, but you have to keep it under control. If you keep it under control, this can be an interesting strategy to add to your portfolio with all the other kind of strategies; one more tool of diversification. It must be under control. Risk must be under control. Stay tuned. More things to come. Ciao.


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Stop Loss

Hi, guys. Hi from Andrea Unger. “No stop loss” is better.

Now, I don’t say this. Sometimes you read it. You read it on forum or you listen to it in some places where traders discuss. What’s behind it? What does it mean? And is it true, no stop loss is better? Let’s go back to the 70s. I was there, but I was born—I was not a trader yet, even strategies, classical strategies worked; channel breakout, we got prices move up and down, we took the highest high over a number of periods, lowest low and we were entering long or short at those levels—channel breakout. And this strategy was actually just a stop and reverse. Long here, short here, breaks down there and so on.

So, these strategies were always in the market. A long position was closed when the short condition was met, and the short position was immediately open. Today, we have software; we can test this. And if we take a strategy and we apply it to a market where it still works, we’ll get a nice performance. But we then try to add a stop loss to the strategy. And actually, most of the times, you will get a worse performance. Smaller net-profit, less money made, disappointed.

So actually, you think about those guys and say, “Oh they were right. No stop loss is better.” But what is the point here? Are we really trading without a stop loss, or is it hidden somewhere? It is hidden. Think about that. You have a long position. At a certain point, you close the long position because you open a short position. So actually, you have a rule in your system that tells you when you have to close your open position. The rule in this case is simply the opposite end, but it’s a rule. You have a specific rule that tells you when to close a position, regardless if it is in profit or in loss—you have a rule. You do have a rule, and you need rules.

Another case is, let’s take a BIAS strategy that opens a trade at 10 and closes at 5 PM—just an example with round-up numbers. You have a rule that at 5 PM it’s telling you to close that position. It doesn’t matter, if you’re in positive, stationary, or if you’re losing. It’s telling you to close the position. So, you have a time stop in your system; you still have another kind of stop. You never keep a position open hoping to see profits again. You don’t hope. You have rules, and these rules do not necessarily have to be the classic fixed-dollar amount stop, or percentage-amount stop. There are different ways to close or open positions, but there are rules to do so. So, can I have a fixed-amount, dollar-amount stop, a percentage-amount stop, a time stop, a reverse stop? You can name many kinds of exits. Important is that you have the rules in place, and you follow the rules.

So, the “no stop is better” shall never be interpreted as keep a position open and hope. Hope is your enemy. You do not have to hope. You might have a position open for 10 years because it goes back into break-even, maybe, and you close it. Your money has been blocked for 10 years—it’s not a great deal, is it? So actually, “no stop” might be better if stop is the fixed-amount stop. But “no stop,” if it’s intended as “wait and hope,” that’s a disaster. It turns out, sooner or later, it will be a disaster, and it will wipe your account out.

So, always use stops. Use different kinds of stop if you want, but always use rules to close your positions. You need the rules; you have to follow the rules.

Stay tuned. More things to come. Ciao, from Andrea Unger.

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Equity Line

Hi, guys. Hi from Andrea Unger. I wanted to discuss a little bit about the idea of getting a perfect equity line in our balance which, I must admit, unfortunately, is impossible.

The income will never be that regular and will never be as regular as you desire. There is always an up and down. We can’t obviously forecast it. We just only forecast that it will be there, but we can’t tell you when because if we were able to do that, we would obviously switch our systems off one second before they go into the inevitable drawdown.

And the point is that we have to be ready. Obviously, the higher our exposure, the higher the up-and-downs, the rollercoasters, such as in the championships—in the championships, we risk at the top level and, in that case, the up-and-downs are very heavy. But what we have to be aware of is that these up-and-downs happen, they do happen, and we have to be mentally ready for that so that we don’t get disappointed when our balance goes down for a period and we don’t get too much excited when we see a ramp-up in the balance because probably, sooner or later, there will be, again, a nasty drawdown. Ciao, guys. See you.


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Blame the government

It’s raining, blame the government!

This is a typical Italian expression – I’m Andrea Unger, I come from Italy – and I heard this many many times. What does it mean? It means that we normally blame something superior because of our failure.

And this is a wrong attitude in life but also in trading. And trading is what we love and what we try to be winners at. And if we have a same attitude, we probably never succeed or never be consistently successful.

When we trade and we lose, it’s normally our fault. We don’t have to blame the broker for catching our stops or blame the internet connection for dropping at the right moment or the cat for jumping on the keyboard.

No! There are things that can happen, that might happen but they are not a major cause for our failure. If we keep on losing it’s because there are something wrong in our method. And if we don’t acknowledge this, we don’t face the problem, try to solve it, to find a solution, to weak it, to adjust it, to change it or maybe even, I suggest, looking inside of ourselves and admit that we are not tuned for trading. Trading is not for us. It may happen! No blame, just dedicate our time to something else with a highly successful approach. You don’t need to trade.

In any case, whatever happens if you are losing: don’t blame the government, don’t blame anything, don’t even blame yourself. But look into your method, look into your approach and try to find out why this is happening.

Stay tuned, it’s not the government!


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