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The DAX (Deutscher Aktienindex, or German stock market index) is a market that lends itself to trading with various types of strategies.
These include trend-following strategies, which in our experience can offer excellent returns.
In this video, for example, we'll show two trend-following strategies on the DAX that we have had in our portfolio for several years. Indeed, both have been out-of-sample since 2017.
By watching this video you’ll learn:
- How our intraday trend-following strategy is structured
- How our multiday trend-following strategy is structured with triggers based on Bollinger bands
- The real performance of these strategies
Hey everyone! One of the coaches at the Unger Academy here, and welcome back to our usual chat about the strategies in our portfolio that have performed the best in the last period.
Okay, so this week we wanted to talk to you about the DAX, a market that, like other equity indexes, has seen some major downturns in recent weeks, following the data on inflation that came out last Friday, according to which inflation is currently rising above levels we haven't seen in a long time, and this worried the investors who liquidated many open positions, triggering a decline in prices.
So today I want to show you two trend-following strategies that have been able to exploit these movements, specifically an intraday strategy, and then we'll look at another one that is multiday.
Here we can see the intraday strategy, which closes the positions at the end of the day. As for the entries, we wait for a breakout of the higher level between today's high and the previous session's high to go long, and we wait for the opposite pattern, namely a breakout of the lowest level between today's session low and yesterday's session low to go short.
So in the case of the short trades we'll take the lowest value between today's low and yesterday's low, and in the case of the long trades, on the other hand, we'll take the highest value between today's high and yesterday's high.
This strategy has proven to work very well over time. And what's very important and interesting is that the short side has an even higher average trade that is even higher than the long side. You can see it here, it's about €340 versus the €320 of the long side.
The total equity line's also very positive. We developed this strategy in 2017, so it's been out-of-sample for almost 5 years now. And we see that even in its post-development history, this strategy has maintained the metrics of the in sample period.
Let's also take a look at the equity line of the short trades only. And again, we can see that in the out-of-sample it has been able to do very well indeed, which is very difficult when it comes to an equity index.
The DAX is an equity index but compared to other equity indexes such as the American S&P 500 and Nasdaq, it definitely allows for short trading in a much easier way than it happens on the S&P 500 and the Nasdaq. So, go and give it a try! The Dax is a market that definitely lends itself very well to both long and short trades, and that's very useful, especially in times of market declines like this one.
Let's now turn to the next strategy. As I mentioned before, it too is a trend-following strategy but in this case, we'll close our positions beyond the end of the session. So it's a multiday strategy.
This strategy uses the Bollinger Bands as basic trigger to open trades that follow the trend. So, we'll buy when the prices cross the upper band and we'll sell when the prices cross the lower band.
We're on a 15-minute time frame, so the Bollinger bands are also calculated on this time frame. Generally, as far as indicators are concerned, we recommend using a time frame of at least 30 minutes, but 15 minutes are also ok in this particular market, especially considering that this strategy was developed at a time when the session lasted only a few hours, say about 10 hours, so even a faster signal could give good indications.
This strategy was also developed in 2017. In this case, we can see that, as I mentioned before, it isn't so easy to see positive out-of-sample results on the short side. In this case, in fact, we've seen some very difficult years for the short side and then a recovery, just as a result of the increase in volatility that we've seen in recent weeks.
The total equity curve however is positive. This is because the equity line of the long trades in out-of-sample worked quite well. And so, go and give it a try as well. By now we can consider these two strategies as consolidated. The DAX is a market that lends itself well to different approaches, whether reversal, trend-following, as we’ve seen, and even bias.
If there’s someone among you who's interested in the world of systematic trading, I suggest that you click the link in the description of this video. From there you'll be able to watch a video by Andrea Unger, get our best-selling book by just covering the shipping costs, or book a free call with a member of our team.
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And with that, we'll see you soon in our next video! Bye-bye for now!
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.