If you are looking for insights to diversify your portfolio with new strategies, then you're in the right place. In this video, we’ll discuss two strategies for Crude Oil and Mini SP 500 futures that have performed very well in 2022.

Both strategies enter long and short when the so-called "rounded numbers," or price thresholds rounded at intervals of a certain number of points, are crossed.

By watching today's video, you’ll discover:
-The rules and performance of the Crude Oil strategy, out of sample since 2019
-The rules and performance of the strategy on the S&P 500, out of sample since 2017
-Valuable tips on how to set price thresholds and what data to use (whether backadjusted or not)

Enjoy! 😎

Transcription

Introduction

Hey everyone and welcome back to this brand-new video! One of the coaches at the Unger Academy here and in this brand-new video, I’d like to talk to you about two strategies that have performed well in the out-of-sample period post-development period to give you some interesting insights for your automated strategies and of course, to increase the diversification of your portfolio.

Alright, so these strategies that I've mentioned work on Crude Oil and the S&P 500, certainly two of the most important and well-known futures in the U.S. futures landscape.

And both of these strategies enter on the crossing of round numbers.

Strategy for Crude Oil

For example, this strategy for Crude Oil opens a new position whenever the market crosses rounded numbers in steps of five points.

Like in this case, for example: you can see that there was a short entry associated with this level of $80, the round number $80.

Two other entries here the day before ended with a stop loss.

And then the market was down to $75 on the following days, and here’s another rounded number in steps of five, and then the market recovered.

On the other hand, if the market, let's say, from the bottom to the top crosses the level of the rounded number here, we enter long.

That’s what happened, for example, on November 30.

The positions are closed at the end of the day, and the same applies to the other strategy, the one for SP 500.

And as I mentioned earlier, it works in steps of $5.

So let's take a closer look... Here, for example, at the $85 level, you can see how many positions were taken.

For example, also at the $90 level.

In short, in steps of $5, this strategy goes in and out of the market.

This is a strategy that was developed in 2019, specifically in May 2019.

Let's go and see where it is... Yeah, I mean, here, we could say around this time.

And you can see that in the out-of-sample period, even though it was, let's say, not a very easy testing ground because in the years after 2019, there was of course a lot of volatility in the markets as well as some global instability, wars, the pandemic...

I mean, in the last couple of years, it’s really been difficult.

And so, it certainly wasn't easy for this system, which had seen a very good profit performance immediately after it was developed but then went through a period of slack, if you will, where it's been sideways and didn't produce any profits, but the fluctuations were still important.

And then, in early 2022, in the first months of 2022, the strategy resumed performing very well and was finally able to make some really good profits I mean, even better than we saw in the in-sample period.

When you’re using a product like a futures and you want to develop a strategy like this, that enters at precise price levels it's really very important not to use back-adjusted instruments. Using a non-back-adjusted future let's you "see", let's say,

or rather "not see", should we say, the effects of rollover on the price of these products, which as you know have an expiration.

Backadjusted are contracts that are artificially created, and they can be very useful in certain cases...

We could say for almost all developments, but not in this case.

So, I’d recommend that if you want to try your hand at this kind of strategy, create custom futures not adjusted for maturity.

Strategy for Mini S&P500

But let's now move on to the next strategy.

This is a strategy like the previous one that enters both long and short.

In this case, it will have predominantly long trades. And that's why we’re developing in a market that has a predominantly bullish bias.

Of course, last year wasn’t so – compared to the previous years – but still, historically, these are products that tend to go up so it's preferable to trade them with more bullish positions than bearish positions.

In this case, the round number step is built around the 50 threshold.

So, the SP clearly has a much higher number of points than Crude Oil.

And that means that a significant threshold, of course, has to be broader than it has to be in a market like Crude Oil, for example.

In this case, the threshold is actually the 50-point threshold.

For example, here you see trades taken at 3950.

Let's try to scroll through the chart....

Other trades here at 3,950, then at 4,000 also, clearly, here's 3800.

So, every time the market reaches the round number of 50 points, our strategy will try to enter the market.

In this case both in trend-following mode, when the market goes from below to above that level as well as in mean-reverting mode, for example, as was the case in this example here you can see that the market has gone down to touch our level, and here at 3.950 the strategy entered.

This strategy was developed earlier than the previous strategy, in 2017.

And it has the particularity of having a really very short Take profit.

In fact, the time frame used is the 5-minute time frame, so there’s no problem reading our backtest.

$900 represents a move, a fluctuation, of 18 points, which wasn’t that little until a few years ago.

But more recently, with the growth of these markets, the 18-20 points threshold has certainly become easier to reach.

The stop loss is $2,400 on the long side, which is certainly a very high level, but the point here is that with a market like this that tends to bounce and rise, it pays to have a wider stop loss on the long side.

Whereas on the short side, we’re going to have a more limited stop, because we want to limit the risk a little bit more on the short side, at least as far as this strategy is concerned.

On the other hand, the target on the short side will be much bigger than on the long side, because as we know, at times when the markets are volatile and panic these markets tend to move very violently and therefore with a bigger target, specifically $2,500 we’ll try to take advantage of exactly those moves when the market goes down.

Let's go and take a look at the report on this strategy, which, as I mentioned before, was developed in 2017. This is more or less here.

And as you can see, it has produced some very good results immediately. 2017, 2018 and I’d say 2019 as well.

Then of course, came the pandemic and the volatility in the markets, and I must say– just like the previous strategy – this system also experienced a sluggish period.

And then, in early 2022, we can say that things started to go up again, you know, to move up towards new highs, and with some great momentum too.

Now let's go and check out the Average trade of this strategy.

As you can see the strategy made 1700 trades, which is a lot, in more or less 14 years, because the results we're seeing here are from 2008 to 2022.

As you can see, the short side has around one third of the trades compared to the long side.

The Average trade of this system isn’t that large, but it's still enough large to be able to trade on this market because as you know, the SP 500 is really a very liquid market, so it doesn’t cause any particular slippage during live trading.

Final thoughts

Now, these two strategies I think can be used in a well-diversified portfolio of strategies where you have systems that enter at more standard levels, such as the high and the low of the previous session.

So with strategies like these you can further diversify your portfolio and, why not, you know, also try to take advantage of trends that might be based on the book, in this case because most likely in conjunction with round price levels, so with round numbers, traders tend to place a higher volume of orders and that moves the market.

Alright guys. We really hope that you enjoyed the video. And if there is anyone among you who's interested in the world of systematic trading, I suggest that you go and click on the link in the description of this video. From there you can watch a free presentation by Andrea Unger, our founder, and the only 4-time world trading champion in real-money trading. Or you can go and get our best-selling book by just covering the shipping costs, or even hey, book a free call with a member of our team.

If you enjoyed this video, please leave us a Like, subscribe to our channel, and click on the notification bell so that you can be updated when we release new videos.

And with that, we will see you in our next video! Until then, stay safe! Bye bye!

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