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BOOK YOUR FREE STRATEGY SESSION NOW >>What’s the true edge of systematic trading?
It helps us manage risk by diversifying across different financial instruments or using complementary strategies.
In today’s video, we’re sharing two powerful strategies based on completely different approaches, each operating in different markets.
The first is a trend-following strategy that trades gold futures and delivers an average trade value of about $204.
The second is a mean-reverting strategy focused on copper futures, with an average trade value of $114.
Together, these two strategies have generated over $20,000 in profit over the last year.
Curious to know more? Check out the video and discover:
•How these two strategies work, with an explanation of the trend-following and mean-reverting concepts
•A detailed breakdown of their performance
•Valuable insights on trading metal futures
Enjoy! 😊
Introduction
Hello and welcome to this brand new video, where we’ll analyze two trading strategies on metal futures.
More specifically, we’ll look at a strategy for copper futures, shown here on the left, and a strategy for gold futures, with its equity line shown here on the right.
But first, let’s take a quick step back and introduce a simple theoretical concept.
What you see on these charts are not the actual strategies we’ll be analyzing in this video. These are just theoretical examples to help explain the concept of diversification.
Explanation of the Trend-following and Mean-reverting Concepts
Let’s start in order. In the top chart, we have the gold future with a daily time frame, and in the bottom chart, the copper future, also with a daily time frame.
The strategies applied here are a trend-following strategy on the top and a mean-reverting strategy on the bottom—two completely opposite strategies.
Let’s go and take a look at the codes.
In this case, as you can see, it’s literally just two lines of code.
Essentially, for the mean-reverting strategy on copper, we buy on the break of the previous session’s low, using a limit order.
For short entries, we sell on the break of the previous session’s high, also with limit orders.
Naturally, for the trend-following system on gold, we act in the opposite way: we buy on the break of the previous session’s high with a stop order and sell on the break of the previous session’s low with a stop order.
In other words, with this strategy, we expect the price to continue in the same direction once certain levels are reached.
Now, let’s go back to the charts and visualize these two simple strategies.
For example, this is the trend-following strategy on gold. As you can see, when the previous session’s high is broken, a long position is opened, which is then reversed at the breakout of the low level.
For the mean-reverting strategy on copper, a long position is opened when the price breaks below the previous session’s low. This position is reversed when the high is broken.
Now, since we’re applying different logics to two commodities, let’s take a look at their performances.
For the gold system, this is the resulting equity line. It’s not the most appealing, but at least it’s upward trending.
As for the mean-reverting system on copper, this is the equity line.
Again, not very attractive, but it’s growing.
The key idea here is that we can diversify not just by instrument, as we’ve done here with gold and copper, but also by strategy logic. As you saw, we used trend-following on gold and mean-reverting on copper.
This approach showcases the unique characteristics of these two instruments, which belong to the same category of futures but offer different opportunities.
Now, let’s analyze the two strategies I showed you at the very beginning of this video.
As mentioned, we have one strategy for gold and one for copper.
Trend-following Strategy on Gold
Let’s begin with the gold strategy. As you might imagine, this is a trend-following strategy where we buy on the break of the current session’s high, rather than the previous session’s high.
In other words, once the session begins, a high is formed, and when that high is broken, we open a long position.
For short entries, we do the opposite: we sell when the current session’s low is broken.
This strategy also includes additional filters and conditions to better manage positions, as well as automated exits such as a stop loss.
Now, let’s analyze the performance.
Here, you can see the equity line. Although it shows some irregularities, it has performed quite well recently.
Let’s look at the long side equity and the short side equity.
As you can see, the long side has a positive trend, and the same can be said for the short side, although recently its performance hasn’t been as good as that of the long side.
This could be due to the performance of the commodity during a certain period.
By developing strategies for both long and short positions on commodities, we can capture movements in both directions, balancing out performance.
Now, let’s analyze the number of trades and the average trade.
As you can see, there are about 1,690 trades, well balanced between the long and short sides.
The average trade value is around $200, which is enough to cover operating costs like slippage and commissions.
We notice the long trades have a higher average value than the short trades, which is expected given the buy-and-hold trend of gold since 2010.
As you can see, it has generally trended upward, so it makes sense that the strategy performed better on the long side.
Let’s now review the yearly returns.
As you can see, aside from 2008, every year closed in profit.
2020 was a borderline year, considering slippage and commissions weren’t included. These will be added before going live with the strategy or including it in a portfolio.
However, I want to focus on the out-of-sample years: 2022, with a net profit of $17,000; 2023, with $30,000; and 2024, with $15,000.
These are very satisfying performances, confirming that this strategy works well with current session breakouts.
Mean-reverting Strategy on Copper
Now, let’s move on to the second strategy, which is a mean-reverting strategy for copper futures.
In the system we previously discussed, we sold with limit orders on the break of the previous session’s high or bought with limit orders on the break of the previous session’s low.
This strategy is based on a similar concept but with some adjustments.
Specifically, if the price moves above the previous session’s high and then reenters, we open a short position.
This is still a mean-reverting strategy, but we wait for additional confirmation.
The opposite applies for long entries, where we wait for the price to reenter the previous session’s low.
Now, let’s analyze the performance of this mean-reverting system. As you can see, it’s still profitable overall.
There have been highs and lows, especially in recent years, but as we know, there’s no magic formula for making money every day in the markets.
Still, this is a solid strategy.
For the long side, the drawdown in recent years has been more pronounced, while the short side has compensated for it.
Now, let’s examine the strategy’s total trade analysis, where 1,200 trades were executed, well-balanced between long and short sides.
The average trade is at the edge of being tradable but remains sufficient.
Unfortunately, the long side drags down this metric.
Indeed, the average trade on the long side is just $76, while on the short side, it’s $150.
I know what you’re thinking: maybe just use the short side, as it has the higher average trade.
While that’s a logical thought, as I mentioned earlier, if we only kept the short side, we’d miss out on the long side’s compensatory effects during bad periods.
Even though the long side’s average trade isn’t as high, it’s still worth keeping in this strategy.
Let’s now look at the yearly returns, where we see two negative years—2019 and 2023—but overall solid performance.
In 2024, the current year, we see a net profit of $4,800, which would recover the loss from 2023.
Conclusion
We’ll continue monitoring this strategy to see how it performs in the remaining months of the year.
The purpose of this video was to give you two operational insights starting from the concept of diversification.
What you can do now is develop two strategies for these instruments using the triggers we discussed in this video.
That’s all for now. If you’re interested in topics like this, click the first link in the description. We’ll see you in the next video!
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.
