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ANDREA UNGER

WORLD CLASS TRADER


ASIA TOUR 2013
the ONLY trader to win
the WORLD CUP TRADING CHAMPIONSHIPS
3 YEARS IN A ROW

Profitable Trading

From Italy to Asia

Inside Italy

About me

Andrea Unger
Born in 1966
Degree in Mechanical engineering in 1990
From 1992 to 2001 employed in technical-commercial
positions in multinational companies
From 2001 Full time trader

Some success stories


European TopTraderCup
1 place 61%

FIRST Italian book on


money management

World Cup Championship of Futures & Forex Trading


1 place 672%, 115%, 240%, 82%
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What are we looking for?


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

Dont dream this!

Try to avoid this!


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What you think about the markets

What the truth is more likely to be

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One trader two traders

Dr. Jekyll
He sees whats
happening
He doubts about
himself
He thinks to apply a
Stop Loss
He wants to build a
plan for next trade

Mr. Hyde
He feels innocent
about losses
He blames the
markets for going the
wrong way
He blames brokers
for taking our Stop
Losses
He leaves trades
open as they will get
back into profit

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Get rid of Mr. Hyde

He wants you to be undisciplined


Analyse your trades
Dont leave anything to decisions of the moment
Use resident orders
Plan your activity and if possible, once you placed your trades simply walk away

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Get rid of Mr. Hyde

He wants you to trade with no plan


Decisions are hard when calm, imagine what when under stress
Every event has to be planned
Markets have to be studied before trading not during
Also after trading you can look at the markets but only to understand where
your plan might have been wrong

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Get rid of Mr. Hyde

He lets you think you are on your way to become rich very quickly
If you take some wins he lets you think you are invincible
He leads you to risk too much
Risking too much is not the way to become rich, that is gambling
Better rich slowly than poor very quickly

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What is really trading?

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Trading

 There is no particular secret out there


 Markets need to be studied and discovered
 Trying, testing, trying, testing
 Diversification
 Appropriate risk
 Money management

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Are markets all the same?

 A trading approach is not obliged to work properly everywhere to be


considered good
 Some markets are good for trends and to be traded at breakout
 Some markets are very bad for breakout as they show a meanreversal
behavior
 To have a general look at some well known markets lets run a simple
test

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Are markets all the same?

Our test consists in buying the breakout of previous daily high and
exiting the day after on the open, this is just for test purpose but it will
show interesting outcomes:

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Are markets all the same?

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Are markets all the same?

Results on
EURUSD show it
responds properly
to a breakout
entry

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Are markets all the same?

Even better
GBPUSD which
could even be
tradable

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Are markets all the same?

Bad results on
GBPCAD, this
shows a mean
reversal behavior

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Are markets all the same?

Even worse
EURNZD which
could be tradable
taking opposite
entries

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Are markets all the same?

MiniSP 500
future, typical
mean reverting

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Are markets all the same?

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

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Are markets all the same?

It does not
depend on the
long term trend,
same results are
there for short
entries on
breakout of the
low (here is
EminiSP500)

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Are markets all the same?

Here is short on
GBPCAD

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Are markets all the same?

Short on
EURNZD

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Are markets all the same?

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

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Are markets all the same?

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

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Are markets all the same?

Good for intraday trend

Dax future
Gold
Silver
CrudeOil
Copper

Good for overnight trend

Dax future
Commodities
EURUSD
GBPUSD
EURJPY
AUDUSD

Good foCounterTrend

miniSP
Bonds
USDJPY
GBPCAD
EURNZD

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Are markets all the same?

If you develop a method look for solutions in the direction of the type of
market you are intending to trade, dont look for a breakout method on
EminiSP 500, it might be there but for sure it is much more difficult than
a counter trend approach on that market. In the same way dont try a
countertrend method on EURUSD if you are not experienced, it is better
to look for a trend following a breakout.

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Discretional trades or Systems?

 You are directly involved in the

 You dont need to keep on

decision

deciding

 You can manage stress from

 If you trust the system you have

position deciding at the moment

less stress

 You got the feeling to keep

 You can build a good trading

markets under control

plan

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Discretional trades or Systems?

To the end of Februar it


was only discretionary

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So which System?

Psychology

Liquidity

Commissions

When is a System good?


Are all good systems good?
one System or more Systems?

SYSTEM

Drawdown
Margin

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Markets Identification
Good for intraday trend

Good for overnight trend

Dax future
Gold
Silver
CrudeOil
Copper
FTMIB future

Dax future
Commodities
EURUSD
GBPUSD
EURJPY
AUDUSD

Good foCounterTrend

miniSP
Bonds
USDJPY
GBPCAD
EURNZD

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Markets Identification

The same market is not always the same:


Intraday behavior study:
Hourly Long Entry with 1 Hour trade length to study market BIAS
If there is a tendency found with above approach work with filters
Study yearly behaviour to see consistency
Use results as a strategy or as additional conditions

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Markets Identification
On EurUsd
cycles of up and
downs can be
seen, on GMT
hours longs are
fine at 2 am and
5 pm, shorts at 8
am and 10 pm
(*)

(*) Singapore Time is 8 hours ahead of GMT

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

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Markets Identification
The equity is
rising constantly
which means the
approach is
stable and
consistent, it is a
good basis for
further work!

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Breakout development

CrudeOil is one of the most volatile markets, an intraday trend


following strategy can be looked for.
Simple breakout rules are used and and End Of Day Exit Closes the
positions together, eventually, with a Stop Loss

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Breakout development

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Breakout development

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Breakout development

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Breakout development

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Breakout development

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Breakout development

 Breakout entries work on 60 minutes CL


 The principle works but not always
 we delimited the hours during which we take entries
 Market conditions change during the day and the same type of entry
may loose strength in a different moment of the day

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

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Breakout development

The equity line is much less


rising then the case where
we limited activity during
determined hours of the day

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Breakout development

 In our strategy we used a Stop Loss of 1500 USD /contract


 Is it true the Stop Loss needs to be very small?
 Is it true no Stop Loss at all is better?
 Lets run a test using Stops from 0 (no Stop Loss) to 3000 USD step
100 !

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Breakout development

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Breakout development

 We chose a value in between not aiming for the best return overall
 Tight stops dont work! Market needs a bit of freedom to move
 No stop or large stops actually lead to better results
 No Stop could be acceptable in this strategy as there is a time stop in
place, yet in case we decide to apply position sizing based on the
largest loss wed have some problems

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Breakout development

Here are the results


with position sizing on
the version without
Stop Loss

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Breakout development

Here are the results


with the same position
sizing model on the
1500 USD Stop version

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Money Management means:

Always use StopLoss


Use dynamic Profit Targets
Use goo Risk-Reward Ratio

Money Management means:


HOW MUCH to put in each Position
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How to work?

Martingale:
To increase units after a loss and to decrease after a win

AntiMartingale:
To decrease after a loss and to increase after a win

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How to work?

Martingale:
It is based on the psycological aspect that leads to thing a winning trade is hard to
come twice or more in a row and so should a losing trade. There is the belief that
after a losing streak the probability of a winning trade increases a lot.

In reality every event has the same probability!

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How to work?
AntiMartingale:
This method tries to take advantage of winning periods and to protect the capital in
losing periods, an easy approach is to use a constant percentage of risk.

To use for example a 2% risk on the capital is equivalent to increasing exposure


after a win and to reduce it after a loss (after the win the capital increased so the
2% of it will, after a loss the capital decreased and so will the 2% of it).

Lets see some effects flipping a coin


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Head or Tail
100 flips and 1000 flips, starting capital 100

Martingale:
Betting percentace 1%, 2%, 3%, 4%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%,
45%, 50%
The percentage is multiplied by a desired factor after a loss and brought back to initial
value after a win.

AntiMartingale:
Betting percentace 1%, 2%, 3%, 4%, 5%, 10%, 15%, 20%, 25%, 30%,
35%, 40%, 45%, 50% e 51%
The percentage is kept constant throghout the entire series of tosses (as
explained before this will increase the absolute size of the bet after a win
and decrease it after a loss

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Head or Tail

Better winning%
leads to unusual
worse results

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Head or Tail

In this case better


win% lead to better
results

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Martingale example

No Money left

First bet
Second bet
Third bet
Martingale would make sense only in case of
infite capital; but would we waste our time
here in that case?...

Fourth bet
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How much?
Having seen the results an Antimartingale approach is chosen
The concept is based on using a fixed percentage of risk in every trade.

Is there a better percentage?


How can that be determined?

Kelly equation and optimal f yes or no?

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How much?
Kelly equation gives us a purely theoretical answer

K% =

(R+1)*W1
R

Percentage of capital to use in every trade


Average win to average loss ratio
Winning % of the system
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How much?
Kelly equation looks at the statistical aspects of the system, it takes into account the
average values and does not consider eventual peaks.
A real world as trading is too dangerous to be averaged down, it would be better to
take into account the negative aspects of the system, take maybe the worst of them,
and basing calculations on this determine which risked percentage would have led to
the best results.
To do this different percentage will be taken for calculation and the growth of the capital
will be considered as the value to maximize, the percentage which maximises the end
capital is the so called optimal f where f stays for fraction of the capital.

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How much?
Pn Profit of trade number n
HPRn (Holding Period Return of n) Capital multiplier linked to trade number n
WCS (Worst Case Scenario) Highest losing trade of the analysed data
TWR (Terminal Wealth Relative) Multilplier of starting capital to determine end capital
f fraction of capital risked at every trade

HPRn = 1 f*(Pn/WCS)
TWR = HPR1 * HPR2 * HPR3*HPRn

Optimal f is the value that maximises TWR

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How much?
The method works on a series of historical trades, it calculates the TWR with
various values of f and calls optimal f the value that maximises TWR

Kelly equations is based on statistical data of the system, averages calculated to


give a global picture of the behavior of the strategy

If historical data and statistical data are identical also the Kelly Portion and optimal f
will be the same

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Are these the number to use?

No statistical value can perfectly picture the future


No past behavior will replicate identically in the future

Real trading is disturbed by external events


It is highly recommended NOT to use either Kelly portion or optimal f to
determine what percentage of the capital to use as risk exposure!

??? So what???
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Are these the number to use?


Any newbie to trading, due to:

inexperience
Limited capitalization
greed
Normally takes excessive risk.
Kelly criterion and optiomal f give us an idea of what extreme levels of
risk can be, the values used in real life must be a small portion of those
values yet it is important to identify where the phisical limits are

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www.oneyeartarget.com
andrea.unger@oneyeartarget.com

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THANK YOU FOR COMING