In this video, we talk about two strategies for currency futures, a market known for being quite challenging when approached systematically.

Both strategies are of the reversal type and leverage two well-known indicators: Pivot Points and Bollinger Bands.

One trades the Japanese Yen futures while the other trades the Euro-Dollar futures.

In 2023 they generated over $15,000 in profits, which might not sound like a lot, but given the dynamics of these markets, it’s actually quite impressive!

Curious to learn more?

Then check out the video now! You’ll discover:
•The logic behind each strategy
•Detailed performance insights
•Key tips for trading currency futures

Enjoy watching 😎

Transcription

Introduction

Hello and welcome to this brand-new video, where today we'll delve into some of the top currency futures strategies that have been part of our portfolio for years.

Specifically, we'll explore two mean-reverting strategies, where the approach involves buying and selling in oversold and overbought zones, respectively, anticipating a regression towards the mean.

I want to give you a heads-up that, as we'll see shortly, these strategies won't dazzle with their equity curves.

There are two reasons for this. The first is that our aim is to construct robust trading systems as straightforwardly as possible, avoiding the pitfalls of overfitting.

The second reason stems from the challenging nature of the currency futures market. However, developing strategies for these instruments is vital for diversifying our portfolio, even where clear advantages are not as pronounced.

With that, I'm one of the coaches at Unger Academy, and let's proceed to analyze the first of the two strategies.

Japanese Yen Strategy

This strategy targets the Japanese Yen futures and uses a chart with a 15-minute timeframe.

It is based on a famous indicator, Pivot Points. As depicted in this chart, we have a primary support and resistance level.

Ideally, we should have additional levels according to theory, but for simplicity, I've chosen to only show these two, as the strategy focuses on them.

Here, as you can see, we have a crossover below the lower level, followed by the price recrossing and rising above this level, leading us to open a long position.

This long position was closed—or more accurately, reversed—when the price crossed the resistance level downwards.

Indeed, here you can see that a short position was opened.

As evident, this system leverages a straightforward indicator to exploit the mean-reverting nature of the market.

Let's now turn our attention to this strategy's performance. And as anticipated, we're not looking at a spectacular equity line.

There are various drawdown phases, but despite this, it appears the strategy consistently earns money.

Now, let's analyze the equity line from both the long and the short sides.

Here, on the long side, we observe a very interesting thing, that the strategy has been in a drawdown phase since late 2020.

Let's take a look at the equity line on the short side, where we observe a completely opposite scenario.
This is attributable to the price of this underlying asset declining in recent years.

However, as systematic traders, we don’t attempt to predict price movements, so it's still prudent to allocate part of the strategy to the long side because we cannot know if the performance of this underlying asset will change in the future.

Let's now examine the total trade analysis of the strategy, assessing the average trade among other metrics.

Here, we notice that over the years, the strategy executed 800 trades, evenly balanced between the long and short sides.

This is crucial because when trading Japanese Yen futures -- being the underlying asset a currency -- we generally advise to approach the market with similar conditions on both sides, so in what we call a “mirror” way.

Regarding the average trade, we see that the value is sufficiently large to cover trading costs including slippage and commission fees.

It's noteworthy that the average trade of the strategy is significantly higher on the short side and lower on the long side, reflecting the differences observed in the two equity lines.

So now let's go and examine the yearly returns of the strategy.

Here, we see that the strategy has consistently earned money over the years.

The only two years closing negatively were 2008 and 2021, but following 2021, the strategy performed exceptionally well in 2022, earning approximately $16,000.

Euro FX Strategy

With that covered, let's move on to the second of the two strategies.

This strategy focuses on the Euro Dollar futures with a 30-minute timeframe.

Here, we employ another well-known indicator, Bollinger Bands, which is one of the most famous technical analysis tools among traders.

This strategy also capitalizes on the mean-reverting behavior of the market; when the price crosses below the lower band, we go long, and when it crosses above the upper band, we go short.

An interesting aspect of this strategy is that it does not remain in the market for more than three days.

As highlighted by the sessions marked with this gray line, the strategy stays in the market for three days at most. This is also true for the position before, which has also lasted 3 days.

Let's also assess the performance of this strategy, starting, as usual, with the equity line.

What we're observing here is an intriguing equity line that could easily become a case study.

During the out-of-sample phase of the strategy, you'll notice a period with significant drawdown, almost as if the strategy had somehow broken.

However, from the end of 2020 onwards, the strategy appears to have recovered, performing as well as in the in-sample phase.

This underscores the importance of continuity in monitoring even strategies that have been underperforming over the years.

In this case, too, let's examine the equity line from the long side, where we observe consistent growth, except for the drawdown phase coinciding with the total equity's drawdown.

Regarding the equity line on the short side, this drawdown is less pronounced, and growth is even more consistent.

As usual, let's review the total trade analysis, evaluating the average trade.

As before, you'll see that the trades are well balanced between the long and short sides, partly due to the fact that we’re working in a “mirror” way, thus using the same conditions on both sides.

Regarding the average trade, here too, it is ample enough to cover trading costs, including commissions and slippage.

Lastly, let’s go and analyze the strategy's yearly returns. By doing so, we find it performed quite well throughout the period we analyzed.

Despite struggling between 2018 and 2020, which coincides with the drawdowns that we previously observed in the equity line, the strategy subsequently recovered, affirming its stability.

Therefore, we should continue to observe this strategy in 2024 to see if it can replicate the excellent performances seen in 2023, 2022, and 2021.

In conclusion, despite the particular challenges presented by currency futures, this video has demonstrated how it's possible to construct profitable strategies even in the out-of-sample phase.

Thank you for joining me today, and I look forward to seeing you in our next video.

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