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In today's video, Francesco and I will analyze the 2021 results. Between ups and downs (unfortunately...) you’ll see that we never stop studying, experimenting and learning from our mistakes.
Here are some of the topics we’ll cover in the video:
- my turbulent experiment with Small Caps that brought me a 23% drawdown (and how I made up for it and closed the year with a total return of +16%)
- the strategies that allowed Francesco to achieve a +33% return on traditional markets and a +227% on cryptocurrencies
- some thoughts on the SPX trend and what 2022 could look like
Learn from our 2021 as well!
Andrea
Hi, everybody. Andrea here, and I am with Francesco.
Francesco
Hi, guys.
Andrea
We are going through our 2021, which was an interesting year. We had the opportunity to develop new material and study new markets, not always with good results, and you will see what I mean (at least from my side). Francesco is smiling because he knows his situation was a bit different. But in any case, I just wanted to say - I was mentioning this to Francesco I think yesterday - that during 2021, but not only, I probably dedicated more attention to development rather than regularity and common sense in my trading.
I mean, I developed a method of trading. I applied it. I've been applying it for years. But this year, I dedicated more attention to new experiments, and I did it with real money. Of course, as I usually do, I will explain to you why. But I think that if I had done things properly, my situation would have been different. But let me show you the results so that we can better understand what I mean.
OK. This is, as I said, our 2021, and the first chart here shows the result (from Interactive Brokers, where I trade) of my lines. The blue line, the bad one here, is my equity line, which ended up with about 16% . So it's not bad after all, but obviously, you see its behavior compared to 2 benchmarks I just put here - the SPX and the Vanguard world index - and their comparison obviously shows how things went... Bad. In the next slide, you also see some numbers about the results and you can see the drawdown of about 24%, which obviously, is not what we normally look for. What actually happened? In the first part of the year, you can see it was a disaster.
I was experimenting, as I mentioned, a new system, a trading system on US Small Caps. I developed this system not with MultiCharts but with AMIBROKER because I had to use Northgate data to avoid the Survivorship Bias problem, and I had a Survivorship Bias free database. Then I immediately decided to apply the system on my account because it showed to be very promising, and it was. Actually, I think it had been biased by a great 2020.
The system works overall, but it was 2020 that did really well, so I decided to start immediately with real money. I always want to test with real money what I develop because only when you go market do you really know if things look good or not, especially on Small Caps, where we might encounter problems of liquidity in the market. So, well, the result is here in front of you, and it was a disaster. Obviously, at the end of April, more or less, I decided to stop using this system.
It was a psychological stop, not a technical stop, let's say. It was psychological. After printing this, I had a look at the performance of the system afterward, and I must admit that it did well. It recovered and ended up with a great December 2021, but not with my money in the market. Had I traded the right way, the normal way, you see that starting from May, my performance would have been absolutely better - better in general terms and better also compared to the benchmark.
And I'm not showing this to you to show how good I am. I just want to show you that applying a regular approach would have been beneficial for my trading. But my will to experiment has driven me, in this case, in the wrong direction. But in any case, the year was positive, and I'm happy after all.
Experiments are not bad anyway because there's somebody who got great results from his experiments. Do you remember that last year I mentioned that Francesco did much better than me? This year he did even better, so I really started to hate him. Francesco, I leave it to you to show your performance.
Francesco
OK... You know, experimenting means, in a certain sense, to risk because you have to face a new kind of trading and new markets. And you know, it's difficult to try to figure out how a system - a promising system - will be in real. In my case, this was the year of the cryptocurrencies. But we will look at that after this classical account, in which I trade mainly options and stocks, with asset allocation and trading systems, of course. And I had a good performance, about 33% this year with a 12% drawdown, if I remember correctly.
I experienced a drawdown in the same period more or less as Andrea here when an options strategy stopped working. This is not the Iron Shark, it is another one I used with success in the previous year, and this year is not so good for this kind of short-term trading (because it's a short-term options strategy). Anyway, I stopped trading this strategy and I tried to use it in a more opportunistic way. So in the end, I was able to recover from the drawdown, and the curve starting from February to the end of the year was quite good, you know.
Andrea
We can also see some metrics: a 12% drawdown, as I said. If you look at the performance compared to volatility, the SPX probably did better than me, even if the total return was lower. But you know, it's quite difficult to beat the benchmark during such a good year like 2021, so it is quite normal. But, I have to say that I am quite happy because all the metrics of my account are inside my parameters. So as I usually say, I try to obtain a sort of 20% of return.
This evil guy is mentioning 20% because I did worse. I will remember this, Francesco!
Francesco
I usually try to obtain 17%, you know?
Andrea
Ah, ok.
Francesco
And the same goes for the drawdown because I think that having a one-to-one ratio between net profit and max drawdown is quite good. It is difficult to keep the drawdown much lower than the annual result but this year it happened, so I am quite happy with it.
Andrea
I just want to mention one thing: you mentioned it's difficult to beat the benchmark in such a good year and this is true! When the benchmark, so SPX or the stock market, is doing great, it's hard with my approach, Francesco's approach, or any approach, in my opinion, to beat it. What is good with our systematic approach is that when things go really bad, in that case normally, we do much better than the benchmark. After all, I would say we make money while the benchmark loses money. This is important, in my opinion.
Francesco
Yes, I totally agree. And as I said, this was the cryptocurrencies' year. I started trading also because of some technical issues with Interactive Brokers during the first months of the year, and I started trading on Binance, futures and cryptocurrencies. And this is the result of my old portfolio in red, during 2021 until November, because Interactive stopped...
Andrea
Binance! Not interactive.
Francesco
Yeah, sorry, Binance stopped the possibility for Italian traders to trade futures so I needed to stop trading. I was forced to stop trading, and now I need to rebuild my portfolio for the SPOT market, which is quite different, you know. Without using leverage, I need to put more money in my account, and it may also be necessary to choose with more attention which systems I am going to trade for the next month because I can't afford to maintain all my systems active. So, Titan in this case could be a good solution. Anyway, coming back to performance, we can see a 227% return with a 30% drawdown, which is quite a big drawdown but, you know, I prefer using leverage to keep my account on the Binance Exchange as low as possible.
Also, as you know, the cryptocurrency exchanges are, in my opinion, not as safe as a classical broker like Interactive Brokers. So, the purpose of this experiment was to obtain good results using leverage. But anyway, the crypto market is wonderful too because you can choose the leverage you can use because there is so much granularity, like, let’s say, Forex. So you can choose. You can adapt your portfolio to the desired risk and return ratio.
And the red line is the old portfolio, the green line is the equity line of all the systems that work on Ethereum. Then we have Bitcoin in yellow, and the other one is the equity line on Altcoins (which I started trading during April). They didn't do so well, but in a certain way they allowed me to diversify my portfolio. The same goes for the drawdown. The red line is the drawdown of the portfolio and the other equity lines are the drawdowns of the trading systems on each of these cryptocurrencies.
And you can see that in many cases, the drawdown of the portfolio is lower than the drawdown of, let's say, Bitcoin in this case, or Altcoin in this one. So, diversifying can help to mitigate the volatility of your portfolio. This is the reason why I decided to also trade other cryptos, even if the results are quite clear: Ethereum was the best candidate for algorithmic trading right now.
We can see here the result of the portfolio compared to a benchmark, which is obviously Bitcoin, which is the most capitalized cryptocurrency. You can see that a classical buy and hold strategy had a drawdown of about 50% during 2021, while my portfolio was able to keep the drawdown on a max 30% drawdown and also did much better than the benchmark. So, I think that trading systems are a good solution (or a different solution, let's say) compared to buy and hold. I personally prefer to keep the risk under control also because an 80% drawdown (like in 2017, on Bitcoin) is too much for me to afford. I think that trading systems can be an answer, a solution to keep your account more in line with your parameters of return and drawdown.
Andrea
Yes, it's a more relaxed approach. If we can talk about relaxing in trading, of course, because we never know what is going to happen. And obviously, somebody who purchased the Bitcoin at the very start, would now be a millionaire, and there might be new tokens going to the stars in the future, but we don't know which one, and we don't know how it will go from scratch to heaven. So, the problem is to sit in the trade or investment. If you buy and forget it's fine, but if you just want to approach the market, I think that trading is the answer to getting great performance (as Francesco did) and to having control of what is going on, somehow.
Francesco
Yeah, I totally agree.
Andrea
So you see, we both experimented in different directions. I'm the older guy, so I chose the old Small Cap approach, which ended up being a disaster for me. Francesco - who is the main sponsor, let's say, inside Unger Academy for cryptocurrencies - directly experimented on cryptos. I did it as well, but I wanted to show Francesco's performance because he is really representing our approach to cryptos.
If you look at his equity line, you will also notice his strong belief in this approach because the first months of the red line are not great, absolutely, they are leading nowhere. So, only strongly believing that his approach would end up getting what you see here allowed him to keep on trading. He was believing in what he was doing, based on the backtest, of course. But, obviously, you can have the best backtest in the world, but when you start and you get poor performance, your beliefs and commitment start getting worse. Francesco did not stop and obviously he ended up with this great year now.
2022 is new, and crypto markets offer many other opportunities (not only trading systems) and there is an opening world to DEFI... There is really a lot to do still approaching this in an algorithmic way because we only base our decisions on numbers. So what will the results be? We don't know, but we will be back in 12 months from now with a video of the end of 2022, hoping to show you great results and, in my case, hoping to show you better results than Francesco.
Francesco
Yeah, I know. Let me just say that in my opinion, cryptocurrency is a very interesting topic. There is so much to learn, so much to study, so many opportunities... So, my suggestion for the next year for all of you is to try to enter this market, this new mentality, and I think that there are plenty of opportunities there. So, this is my suggestion for 2022.
Andrea
Ok guys, please leave your comments below and let us know what you did and what you believe you will be doing in 2022 and, well, happy New Year! From Andrea Unger, Francesco Placci, and the whole Unger Academy.
Francesco
Bye!
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.
