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Today's video talks about a recurring behavior on the Gasoline future that has been used by systematic traders for years.
In the video, we’ll show you how to identify this recurring pattern and exploit it with a 3-line system.
We’ll also show you the system's performance before and after the pandemic.
Indeed, quite a bit has changed recently!
Watch the video to learn more!
Hey everyone, and welcome back!
One of the coaches of Unger Academy here, and today we're going to be talking about the Gasoline market quoted on CME. More in particular, we're going to be focusing on one of the most famous biases in systematic trading, that is, the behavior that characterizes this market during the first session of the week.
So let's get started with this video. First things first, let's look at the average monetary excursion of this market. In this case, we're going to consider the whole trading week starting from Sunday at 6 pm exchange time, and finishing on Friday at 5 pm, which is when the market closes before the weekend.
The chart you see here shows the average behavior of Gasoline over the week. The most eye-catching thing is certainly the strong bearish trend that occurs during the first session of the week. In fact, if from January 2010 to December 2021, we went short every Sunday around 7 pm and closed the positions every Monday at 5 pm, which is when the first session of the week ends, we would have got an average trade of more than $200.
Now, to see the backtest of this strategy we only need to code it in Power Language. And don't worry, it really just takes three lines of code. So let's see them together. The entry condition is "if t = 1900" (which means 7 pm) "and dayofweek(d) = 0" (which means that the day of the week should be the zero day, I.e., Sunday, so if it's Sunday at 7 pm) "then sellshort next bar market;". The third line is "setexitonclose;". Now this command tells the strategy to close all open positions – just a short position in this case – at the end of the Monday session. So this means that we're going to close all our positions on Monday at 5 pm.
Let's go and compile the strategy. Here we have our entries. Now let's check out the performance report from early 2010 until today.
As you can see, the system does perform pretty well. Let's also take a look at the metrics of our strategy. The average trade is very large and confirms what we've just seen in the previous chart. What's good about this average trade is that on an instrument such as Gasoline it lets us cover all slippage costs and commissions. Given these results, you must be thinking that this strategy is ready to be used live, right now.
Unfortunately, however, it isn't. In fact, there is a problem. So far I've shown you only the average behavior of Gasoline from 2010 until today, but I didn't show you how it behaved throughout the years, so you still don't know if this average behavior was regular or not.
So let's go check out how our equity line would have behaved throughout the years. And what we see by looking at this curve is that the strategy would have performed very well from early 2010 until late February or early March 2020, with small drawdowns of less than $10,000.
But then, from February/March 2020 on, probably due to the outbreak of the pandemic, this strategy stopped working. Actually, it broke completely. When we go and have a look at the equity curve with the drawdown, this is quite clear to see. As you can see, from a certain period onwards, this strategy went down very sharply. And at this point, it would even seem wise to do the opposite.
This change is obviously due to the fact that during the Covid pandemic, the prices of oil and gasoline fell sharply and then went through a strong bullish trend.
Now we can certainly to point out that nothing is forever, not even trading systems. If we had built the same system five or six years ago, it would have certainly worked very well until March 2020. But what would have happened next? What would we have done if we were trading this strategy live and it started to perform badly, and its equity line started to go down and never resumed rising?
Well, in addition to building trading systems and finding market edges, we also focus on how to manage our strategies when they are in live mode. Obviously, the same way we apply a numerical and quantitative approach when we look for edges, we also use objective, quantitative criteria to understand when it's time to pause, stop or resume using our trading systems in live mode.
So to sum it up: is this strategy to be thrown away? Absolutely not! Why? Because this strong bias may come back, and we need to be ready for that. We need to monitor the strategy to avoid missing out on the right time when this approach resumes being profitable.
Finally, let me show the metrics year by year. As you can see, there has been a consistent growth until March 2020. But from then on, the strategy began to go down.
If you're interested in understanding how to build these trading systems, and above all, if you're looking for a profitable way to do it, we follow the method of the 4-time world trading champion with real money Andrea Unger.
If you want to learn more about this method, we're going to leave you a link in the description of this video. It'll take you to a totally free webinar that will introduce you to the subject. You'll see what it means to find an edge, so a competitive advantage in the markets, and how to manage your trading systems properly.
And with that, our video is over.
And if you have any ideas for our videos, or if there are any topics that you're interested in and about which you'd like to learn more, please write them down in the comments!
I will see you in our next videos dedicated to trading tips and tricks!
Until then stay safe everyone. Bye-bye!
Need More Help? Book Your FREE Strategy Session With Our Team Today!
We’ll help you map out a plan to fix the problems in your trading and get you to the next level. Answer a few questions on our application and then choose a time that works for you.BOOK YOUR FREE STRATEGY SESSION NOW >>
Andrea Unger here and I help retail traders to improve their trading, scientifically. I went from being a cog in the machine in a multinational company to the only 4-Time World Trading Champion in a little more than 10 years.
I've been a professional trader since 2001 and in 2008 I became World Champion using just 4 automated trading systems.
In 2015 I founded Unger Academy, where I teach my method of developing effecting trading strategies: a scientific, replicable and universal method, based on numbers and statistics, not hunches, which led me and my students to become Champions again and again.
Now I'm here to help you learn how to develop your own strategies, autonomously. This channel will help you improve your trading, know the markets better, and apply the scientific method to financial markets.
Becoming a trader is harder than you think, but if you have passion, will, and sufficient capital, you'll learn how to code and develop effective strategies, manage risk, and diversify a portfolio of trading systems to greatly improve your chances of becoming successful.