System Development in Dynamic Markets | Andrea Unger
Recorded Tuesday, 18th September 2018
ABOUT ANDREA UNGER
Andrea Unger is the only Four-Time winner of the World Cup Trading Championships®^ (2008, 2009, 2010, and 2012) and is a full time professional trader and published author. Unger has been part of the scientific committee of the Italian Society of Technical Analysis and frequently speaks at conferences around the world. Known for his success in the World Cup Trading Championships®^, Unger is the creator of Unger Academy®^, designed to teach traders how to build automated systems and focus their trading mindset. View his popular trading blog here and check out if automated trading is for you here.
In this webinar, Andrea Unger uses a real life example to demonstrate how the markets change over time and how the evolution of markets is making automated trading approaches more difficult. As markets become more efficient, it is necessary to focus on precise approaches and develop targeted solutions. He covers a few examples of solutions that can be used in order to adapt basic algo strategies to the market.
He starts by running a basic backtest on the EUR/USD using a Donchian Channel breakout strategy. The Donchian Channel strategy is said to be an “always in the market strategy” because positions can be reversed if the opposite side of the channel is touched. The backtest is completed on a timeframe of 50 days, 20 days, and 5 days and the profitability results are displayed from 1993 to 2018. The backtest results illustrate how a simple strategy has diminished in alpha over time.
Next, he backtests both a trend following strategy and a countertrend strategy to see if the results are similar. The trend following strategy is a basic strategy where the trader attempts to gain profit by following an overall trend or direction of the market. A countertrend strategy is a type of strategy where a trader enters the market at the anticipation of an inversion or enter when market is already showing signs of inversion.
One way to use a trend following strategy is to take the momentum approach as Unger explains in more detail. He also covers how the RSI (relative strength index) approach can be used for a countertrend strategy. Based on the results of the backtests that were run on the webinar, the momentum approach was not consistent across multiple timeframes and currency pairs. The RSI approach showed similar results that were not ideal. The classic Donchian channel breakout approach showed the most promising as it displayed a positive outcome across markets.
Now that we can clearly see how these strategies change over time, we can find ways to improve upon them and adapt them to the market. Unger tests out how adding indicators, changing timeframes and even the time of day that you trade can impact the results the strategy. For example, Bollinger bands show to be more effective for countertrend strategies. He also shows how to tweak the strategy by backtesting different combinations of stops and limits as well as adding a Bollinger bands into the logic. Not all market behave the same way and this must be considered as a trader makes improvements to his or her strategy. Just because the markets are constantly changing does not mean that we cannot find solutions four algo strategies to adapt.
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