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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Investing in Gold

Hi, Andrea Unger here. Some people, when they know what I do for a living, they start asking questions such as, “Where do you think E-mini S&P will be in one month.” These are, maybe, interviews you get on TV channels or at Expos from professional journalists. Another question such as, “Do you think it’s a good moment to invest in gold?”

Or friends who ask, “Oh, could you give me some tips? What stocks should I buy right now?” and so on. Well, guys, I can’t answer these questions simply because, first of all, I don’t have the necessary knowledge about the fundamentals of economics to have an idea what kind of moves would take place.

Second, my trading is a systematic trading—which means that I study how markets move and try to take advantage of this. I don’t care where a market will be in one month or so. I try to move at best within limited space where a market is showing me he is willing to go right now. I don’t preview where a market is going to; I simply follow what the market is already showing—that’s also trend following. I follow the trend. I don’t guess what the trend will be. This is very important.

So, I can’t tell you if it’s a good moment to invest in gold. I can’t tell you where the E-mini S&P is heading up in one month. I’m simply trying to do the best in a day-by-day environment.

Stay tuned.


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Systems Always Running

Hi guys ! Andrea Unger here – people know I’m a systematic trader and sometimes they ask if the system should always be on.

This is a tough question actually and the normal answer is “yes”: system should always work, but there are special cases such as the Referendum on Brexit for example; or the American election -the election where Trump won- where we can expect a high degree of volatility in the market and the moves that take place in that case have nothing to do with what markets normally do. So, considering that our systems are built on the specific identities of the markets, on what we do, on what we expect we do; when we can expect that the market will do something that is not normal, then we have useless systems. It’s like driving with a Ferrari on a country road: you have a very nice car but it’s not the right place to use it.

So actually, those are cases where common sense would tell you to better switch off everything, flatten your positions and wait to see when things get normal again and go back to normality.

In the specific case you could consider what the surprises would be and eventually if you have open positions in the direction of a surprise, you could consider keeping those positions opened. For example on the American election Hillary Clinton was expected to win and that would not probably lead markets up very much, so having short positions opened, you could actually keep them and you knew that if Trump would win those short positions would show interesting gain. Obviously – I mean – this is common sense and knowledge after the facts, so my suggestion is: when you are in front of specific turbulent events you better switch everything off and see when things go back to normality again.


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Italians do it better

Hi Guys, Andrea Unger here. You know I’m Italian. I trade from Italy, and I’ve won the World Cup Trading Championship 4 times. I’m the only trader in the world, so Italy is represented by the only trader who achieved the goal of winning four times that contest.

Normally when I visit expos on trading, I notice that to some extent, there might be a situation where Italy is one step behind the rest of the world but when we go to top levels, I mean top level intended as people who do this as a business, then we can easily say that Italy is not worse than the others. In this case we are even better because nobody else in no part of the world achieved the goal of winning 4 times overall, and 3 times in a row, the World Cup Trading Championship.

I’m proud, I’m proud of this, I’m proud of being Italian and I’m proud of having represented Italy in doing such a thing. And once again, we can say “Italians do it better”.

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.

Ciao.


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