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BOOK YOUR FREE STRATEGY SESSION NOW >>In recent years, the price of the cryptocurrency ETH (Ethereum) has grown tremendously, making it the second largest crypto in the world by capitalization after Bitcoin.
Given the underlying bullish trend and the tendency to follow trends, this market lends itself to be traded using trend-following strategies that go long.
In today's video we'll show you how to build and code a trend-following trading system for Ethereum based on the Opening Range Breakout approach.
By watching the video you'll discover:
- The entry and exit rules on which the strategy is based
- The code of the system including stop loss, profit target and limitation on market entries
- The performance of the system (spoiler alert: nice equity line and great average trade!)
Enjoy! 😎
Hey everyone and welcome back! One of the coaches at Unger Academy here and today we're going to be talking about how to build an "Opening Range Breakout" trading system on Ethereum.
Since we systematic traders are always looking for new ideas for our trading, today we're going to see a trend-following trading system that will enter the market once a certain percentage threshold has been crossed.
Alright, so let's start with some "practical theory", let's call it that, on this type of trading system. The rules are very simple. As you can see here, I've loaded a 30-minute chart of Ethereum with data from Binance, which is an exchange that requires an account to connect the API with MultiCharts.
I've already uploaded a strategy with some inputs that have already been optimized and also an indicator, but we'll see it later.
The rules of this strategy are, as I said before, to wait for an upward movement to enter long. This movement is calculated starting from the open of the session, as for example in this case here.
You can see that the market has opened. From the open level, we'll calculate a percentage and add this percentage to the open value. If the value is exceeded, then we'll enter the market.
Let's take a look at another example. Here, for example, you can see that the market had made this spike. It didn't break through the level. In this case, we'll wait for an upward movement of 4.5%.
You can see that here it hadn't touched the threshold. Here instead it passed the threshold. So, the strategy entered the market.
Let's take a look at the strategy script now. I've set three inputs. The stop and the target are set, relatively, at 5% and 20% from the strategy entry price. I know that 20% and 5% may seem quite a lot, but let's keep in mind that cryptocurrencies tend to make large fluctuations, so we need to be a bit more flexible when we set this kind of settings on these markets.
And then we have the last input, which is the one that will determine the trigger, namely the entry level of the strategy. This input is set at 4.5% from the opening of the session.
Then two variables used to calculate the stop loss and the target. Stop loss will be calculated in this way, so starting from the entry price. If I enter long and I want to put a stop, I'll have to subtract a certain value from the entry price. Therefore, we're going to calculate, as I said before, a 5% from our entry price.
As for the profit target, the same exact concept but with the "plus" sign, because in order to close a bullish position in profit, we'll have to sell at a higher price than the entry price, in this case 20% higher.
Then we have the entry conditions. We simply want to skip the first two bars of the session and don't want to trade at the very last bar.
We only want one entry per day, so not multiple entries. And then, as I was telling you, we have the trigger condition that wants that the close of a 30-minute bar is greater than what? Than the opening of today's session plus itself times a percentage, which in this case will be, as I mentioned before, 4.5%.
If all these three conditions are met, namely, the time window, the market position condition, and the trigger level, then we'll buy at market.
For exits, when we are in a bullish position, we can close substantially at the low of two sessions ago. So, if the market... I entered long, if the market were to go backwards, which can always happen, then should the market touch and break the level of the low of two sessions ago, I'll place a stop order and close the position.
Then we have, as I mentioned, the stop loss and the target. So, these are the three types of exits and we're going to look at them on the chart.
So here we are back on the chart. As I mentioned, we have different types of exits. For example, an exit called "LX low" will basically place a stop order on the lowest low of the previous two sessions.
And in this case, it would be this level. You can see that it closes right near this level. This exit could work sometimes as a trailing stop, sometimes as a break even, sometimes as a stop, but not as large as the highest stop loss, which is, for example, this one.
We also see this example here. For example, and here another "LX low" and you'll see that the level is equal to the lowest low of two sessions ago.
A definitely useful tool to debug and to help us understand where our trigger level is, is this indicator that I created. You can see that it pretty much always identifies 4.5% from the open.
It's nothing very difficult. We saw it earlier. We simply brought back a few conditions from before and then had this level plotted for us, which is nothing more than our trigger level.
The results of this strategy are these. As I mentioned, we only enter long. The equity line looks very good.
The average trade is also very positive: $128. In this case, I have set, from MultiCharts properties, to buy for each position, for each trade, $10,000. And these are the results. So, $128 on $10,000: means that we have an average trade of over 1%, 1.28%.
Drawdown... The drawdowns are certainly there, we can see them here. They are also very deep at times, but certainly less than the buy and hold strategy, which certainly would have produced very different profits, but also very serious bellyaches.
Like these stages of 2018 but also recently with the collapses that occurred following the outbreak of war in Ukraine.
So, surely a strategy of this type, while entering only and always in a bullish direction, was able to protect itself, in some way, from very high losses. While instead, for example with a simple buy and hold approach we would have faced even higher losses.
Let's take a look at the year-to-year results as well. As I was telling you, 2018 is positive. You can definitely see that that there were losses. The number of trades was very high because clearly the volatility during those years was very high, and consequently entering on percentage movements, you can see that not all years have a fixed number of trades.
Let's leave 2022 alone which is only just beginning. All the other years have varying numbers of trades in any case. The more volatile the year is, as for example 2021 and 2018, you'll see that the strategy will have many more opportunities to enter, because clearly the market gives more signals in that sense.
All years have been positive. This strategy, we could say, is still somewhat unrefined. It could be improved. Add some conditions, some entry filters. You could also try to insert the short side as well. It's much more difficult and more complex because we would be trading on a slightly unfavorable ground. But, in any case, there are some possibilities. If you are curious, you can discover many interesting things.
We really hope that this video has been helpful to you. If there is someone among you who is interested in the world of systematic trading, I’ll leave a link in the description of this video from which you can access a video of Andrea Unger, or get our best-selling book covering only the shipping costs, or even book a free call with a member of our team.
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And with that, we will see you in our next video. Bye-bye everyone!
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.
