Given the bullish nature of stock indexes, many traders tend to overexpose themselves using strategies that trade only long positions on these markets.

However, finding strategies that can trade stock indexes profitably with short positions is not always an easy task...

This is why we decided to talk to you about two trend-following strategies for the Nasdaq that were able to benefit not only from the underlying bullish trend of this market, but also from its downtrends.

Watch the video now to find out more about how they work and their real performance! 

Enjoy 😎

Transcription

Hey everyone! One of the coaches of Unger Academy here and welcome back to our weekly video dedicated to the strategies in our portfolio that have performed the best last week.

Well, this week we’re going to be talking about a very liquid and very well-known and traded future belonging to the Equity Index category: the Nasdaq. This equity index represents the most capitalized companies in the technology sector. This index also contains other stocks, and in total it contains the 100 most capitalized technology stocks in the United States.

Today we talk about two strategies that in addition to taking advantage of the uptrends of this market, were also able to exploit the downtrends that took place over the last few days.

So here you can see the chart of the first strategy that we’re going to see. It is based on a trend-following approach and basically, it looks for certain levels that are calculated by adding to the open of the day a multiplier based on the volatility of the instrument. As for the calculation of volatility, we used the Average True Range, which is an indicator used to calculate the volatility in points.

So, if we add or subtract a threshold to the open of the day, we get two entry levels. Look, for example, at this case here (let’s zoom in a little bit). As you can see, at the open of this session, the market had a steep downward extension and our strategy went short when the price touched the level that we calculated using the ATR.

Then the strategy hit a take profit, so it went even better in this case. But let’s look at another example. Again, since the open of the day the market has gone up, and we placed our orders on this large spread, because it’s where we believed that the market would continue to go up.

Unlike the Mini S&P 500, which can be considered its big brother, the Nasdaq responds slightly better to trend-following approaches, and you can see this especially in recent years.

As a consequence, strategies of this type can surely be very useful, especially in those moments of downturn when, after a great extension, the market may panic a little bit and continue in that direction.

Now let's check out the equity line of the strategy. This strategy was developed in 2018, so more or less in this area here. And as you can see it worked pretty well even in the out of sample period.

So, guys, please give it a try. You know, I didn't tell you that it's an intraday strategy... I'm telling you now, so you have all the info you need to be able to develop this strategy as well.

Now let's move on to the next strategy, which is also applied to the Nasdaq futures, and which could also be defined as trend-following. More precisely, we enter long when the price exceeds the high of the previous day minus a factor that, in this case, is calculated in points. So, instead of entering exactly on the typical level, which is the high of the previous day, we get smart and subtract a number of points or ticks from this level and when this threshold is exceeded, well, we go long.

Same for the short side, where in this case we’re going to add to the low of the previous day a number, a factor in points, and once the calculated level is exceeded, we go short.

So, as you can see, this is a trend-following strategy that opens the positions following the trends.

Let's also take a look at the report of this strategy, which was also developed in 2018. So about here in this area. Certainly, the out of sample equity is more volatile, but this also applies to the market, which among other things in recent years has grown very much indeed. You could say that it has more than doubled its value, and therefore it’s possible that even a single contract today, being worth more than what it was 10 years ago, causes more volatility in this index. Nothing dramatic though, because, as you can see here, the strategy is on historical highs.

So as you can see, the short side of this strategy has worked very well indeed, and this is very interesting considering that the buy and hold of this market, as mentioned earlier, has been really impressive. Since 2008 its value has almost increased by ten times. 

So getting such good results by trading short on this market means that we could take advantage of the moments of downturn and, most importantly, to protect our account in the moments when most of us are overexposed - for example having only long trades on stock indexes. So having such a strategy in our portfolio certainly is a great thing. So why don’t you focus on this future too, and try to find some good strategies to use for live trading?

As always, I invite you to leave us a Like, subscribe to our channel and click on the notification bell to stay updated on the release of all our new videos.

Below you'll also find a link to a completely free webinar by the 4-time world trading champion Andrea Unger, who will explain step-by-step how to approach systematic trading. 

Bye-bye for now, and will see you soon!

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