Our Trading Performance in 2022: Lessons Learned and Valuable Tips for Fellow Traders

Transcription
Introduction

Andrea
Hi, guys. Andrea Unger here from Unger Academy together with Francesco Placci.

Francesco
Hi guys.

Andrea
And we're here to review how our 2022 went in terms of trading. And I will present the performance of the futures account where the trading systems work. The same will do Francesco. He will probably tell you also something about cryptos, but this will come later.

It was a tough year for sure. Everything went wrong. Not that wrong, but wrong enough to be a bit disappointed. But in any case, there is a lot to learn from periods where things don't go exactly how you wished. So I see this as an opportunity and I've already found some opportunities in what you're going to see, I will tell you later.

Unger's performance and his portfolio analysis

So just to go through my performance during this year, here you have the Portfolio Analyst of Interactive Brokers, and you see that I ended up with about a +5% performance on my account with a very bad June, worst return. And up to August, things went well. I was happy. I should have gone on holiday after that, but I kept on trading and the latter part of the year went down. Two bad months, September and November, and two horizontal months, October and December. So obviously when these things happen, I look into the worst period to see if some specific markets did particularly bad. And the first month I analyzed was June.

Francesco
Andrea!

Andrea
Sorry, Francesco. The benchmark...

Francesco
Yeah, let me say that compared to the benchmark, your portfolio did quite well.

Andrea
Yeah, thanks for helping! Yes, if we compare to the benchmark here we have the American stock market, the international stock market and the whole stock market, which are more or less the same, they all went pretty much bad, I would say. And I did better, but not well enough, in my opinion. Specifically because some things went wrong and I will tell you.

Let me show you. First of all, June, okay. I only put the losers here. You see that the worst loser is Gasoline. I mean, all the mix of systems I use on Gasoline, these did very poorly in June. Altogether they lost more than 4% on my whole account balance, which is a lot, I mean. But you see they are together with other energy futures, Crude Oil and Heating Oil, and at the bottom of the list, Natural Gas. But Natural Gas is more of a coincidence. I mean, Natural Gas is not correlated with the first three there, generally. So it's here, it is in the losers list, but just because it lost on its own.

But obviously the bad reaction to all my setups of a whole bunch of systems on the energy group is something that hit heavily the June performance. And this is an interesting note, which I will explain later, but it's bad news, of course. Now you see, Gasoline is the worst. And together with these we see also a very poor month of the Mini SP 500. I have many systems on the Mini SP 500, and the mix of these did bad in June, which helped, let's say, the losing month. Helped in negative terms in this case.

If we jump to the month of September, which also went bad and was the first of the latter part of the year to make the year bad, here we see that the Mini SP 500 is the market where I lost most money. Together with that, again Gasoline. So it seems like these are the worst things that I had to trade during the year.

For the first time you see also the 30-year bond, which means that the mix of systems I had on the 30-year bond did bad. And it's not a surprise because the year of the bonds was weird. If we think about the scenario that we saw, the problems with inflation that drove the markets to the bottoms, and the worst thing of all of this is the correlation to the downside between bonds and indexes, which normally does not happen. But this year was a particular year where both moved together in the red.

Here in the list, we saw Kansas Wheat. I have one system, I must admit I've only one. This system, chosen by my software Titan - that lets me know the list of the systems to trade during the month - chose the system for September, and it was a bad choice. It happens. And I put it here just because of that number. It's the number four in the list. But I mean, this is a coincidence because it's one system which happened to lose.

Jumping to November, we see that here losers are smaller. But I had many more losers. I only show the first four just to let you know the month was a loser so obviously I lost money also on the other markets, and I did not make enough money to cover these losses with the winning systems.

Bonds, in any case, were the worst. You see that. And again we find Crude Oil, second spot here. Then Feeder Cattle, which is a standalone, let's say, because Feeder Cattle is a bit uncorrelated to the other markets generally, as all meat systems or markets are.

And then we have Gold. Gold which, you will see later, played an important role in the whole year. And here it's in the fourth place, but it lost also in other months. But now I see this because it's in the fourth place here.

Looking at the whole results over the year, here it is, here I put also the winners because I also made some money having finished in plus. You see that the top winner is Gasoline. But you remember you've seen Gasoline in the top losers list, once the worst in June and in September, it was in the second place. So actually, this might sound astonishing to find it here as the best performer of the year. Truth is that Gasoline did obviously incredibly well in the first months of the year. And also after the two losers that you saw, it did well. So actually what happened in June is sort of a retracement or something like an overbought area of something where you went retraced. Obviously, this applies to trend following, but Gasoline, as a performance of systems, as a responsiveness of systems to their common behavior, did its best in the first part of the year. Then, coming out sort of drunk after that incredible scenario, which you all know happened in the first part of the year, due to the sad news about war and all the energy crisis that we had, it arrived at a point where it was too much. And when it was too much, it started moving badly. Badly in terms of what it normally does because systems are built on what a market normally does. If a market behaves unnormal, obviously, you get to something that loses money. And this is what happened in June. But overall, you see Gasoline did very well.

So what I'm investigating about, and Franz, Francesco knows, because I already involved him, is to understand if there is a way to detect a moment where a market really behaved in an exaggerated way, so that it's better to stop everything for a while, to wait until it calms again or is normal again. Unfortunately, I have not found an answer to this yet because we all look for a numerical answer, because we work on numbers to make our decisions. So we have to find something that can be replicated, so to find something where we find clear information about "now it's time to stop until blah, blah, blah". We are investigating. Maybe end of next year, when we'll show this, you will see the answer to this, so we'll all take advantage of that. I hope so.

But in any case, going on with the list… second place, there is Soybeans. And Soybeans is good news, of course. It's not a surprise because in the last three years, more or less, I can tell you that Soybeans came back to their brilliant behavior in terms of systematic trading. There has been a while where they were a bit choppy. Now, the last three years, as said, most of the systems behave very well. I will probably work on Soybeans anyway a bit more because I want to add systems to my portfolio of systems on Soybeans. There is still much to discover, especially on bias, seasonality and so. I mean, I will probably work on this because they are really moving well in terms of automated trading.

In the third place you find Live Cattle. I told you before that meats are sort of uncorrelated. It did very well. It's more a matter of fact. It did well. That's it. It's not because meats did well. In fact, at the bottom of the losers list, not the worst, but the best loser, let's say, you see Feeder Cattle, which is the cousin, the little brother of Live Cattle. So actually, it's more a matter of how my portfolio system looks like, and Live Cattle did well and Feeder Cattle did bad. So just they are there because they did so.

The good news and the surprise of 2022 is the EuroFX future, the future on Euro-US Dollar. This did very well, you see, +2.3% and I can tell you that the EuroFX was a market that did incredibly well for systematic trading up to 2011, more or less. And after that, all systems I don't say broke down but led to difficulties in delivering performance. Lately, I would say... Before 2011 most trend following stuff worked very well. After that, due to a decrease in volatility, and also in trend, let's say, most of the systems changed their behavior and I also introduced mean-reverting systems on EuroFX and they did well. But I've never found brilliant years on this future like what you see here. And last year was good. Of course, there has been a big move, a huge move and this helped, of course. But it's interesting how this and other currencies did well. Maybe Francesco can confirm or tell me that I'm wrong later on about currencies in general and their behavior throughout the years. 2011 was the last year where I got something where I liked these markets. After that, I kept them in my portfolio, they did well so that EuroFX is here, at least today, but they never delivered a decent performance.

On the fifth place, you see the Euro bond. This is interesting because it's a prize to my choice to keep also short entry setups in my systems, even though they did poorly all over the historical backtest. But they made a choice to keep also break-even or even sometimes losing setups in the systems together with the long entries, which did well, of course. But in the year which we've just passed, where there have been interesting or heavy down moves in the market, these setups made their job very well. And you find this bond here in the list.

The American cousin, the 30 years bond, on the contrary, did very bad. Here all the mix of systems I had did not really get to their duty. They lost money, they heavily lost money. It was a crazy year for bonds. I have also shorted the setups on bonds, on the US bonds, but it was not enough. Generally, you see, the performance is a disaster on bonds and I'm not afraid of the next results on bonds, of course, because I trust the systems that I have. They are still performing after the expectations, they are within the borders where you can define a system alive and kicking. But this year was a disaster.

The real bad news here are the next ones, Heating Oil and Crude Oil. They both did very bad. Apart from Heating Oil, okay, it's a small market, I don't have many systems. But Crude Oil did bad. While Gasoline took advantage of the volatility of energy markets, Crude Oil, which could have done the same, wasn't able to grasp the necessary entries this year, and this is my fault. I address me as the culprit of this because I believe that I kept too old a mix of systems on Crude Oil. And not refreshing the mix of systems happened to respond bad to the moves we found this year. Gasoline systems are newer, let's say, just because Gasoline became more interesting in the later years because of volatility... Uhm, sorry, of the liquidity of the market. So I didn't consider Gasoline earlier while Crude Oil was one of the first commodities I traded back in 2010, but I stick too much to the old mix of systems and this probably harmed the performance in 2022.

I can't say the same about Gold because I'm actively working on Gold, but the year was bad. Gold is actually alternating good years to bad years, so I hope for a good 2023 now. But Gold was one of the disappointing results of this year. Very disappointing because you see, not just because of the performance. I believed a bit more in Gold.

The Mini SP mix did bad, very bad. I'm not traumatizing this anyway, because the year was a crazy year in terms of geopolitical macroeconomic scenario. So obviously, this drove the stock indexes market crazy, let's say, or crazy enough to respond bad to all the normal and standard behaviors they show. And this reflects in the Mini SP performance. So I'm not happy about the performance, but I'm not criticizing that too much. The mix of systems is good. I expect it to recover very well as soon as the market conditions come back to normality. I accept this, even though I don't like it, of course.

And Feeder Cattle, as said, is sort of a standalone. It did bad, okay. I made more money on Live Cattle so they balanced themselves, more or less.

This was more or less the year I had. Not a good year, as said. Better than benchmarks, said Francesco. So I'm happy about that, at least. And I learned that I have to work on refreshing the Crude Oil mix, monitoring Gold and hoping for a come back to normality as soon as possible. In any case, I see many opportunities in the coming year for the mix of systems that I have, because I see markets, in spite of a bad latter part of the year, are starting to work in a proper way again. Francesco, maybe you can show us what you did.

Placci's performance

Francesco
Okay, this is my futures account. I start by saying that I'm quite satisfied, let's say, compared to the benchmark, with my results: 16% with 16% of drawdown, so they are balanced. But compared to the Mini SP, that is at -20%, I think this could be a good result. Even if I had quite a lot of volatility at the beginning of the year in the first six months of the year, especially in January, the first drawdown of the market, we can say. And then around April and May, okay. Then, in the second part of the year, the portfolio started to behave in a better way. I decided to develop new trading systems on commodities, especially on commodities that are uncorrelated with the Mini SP, which is the driver of the market anyway. Especially on Coffee futures, which I like very much. It is a breakout underlying which behave quite well. It is very regular in my backtest, so I decided to insert a couple of systems on Coffee and also on other markets, on other commodities, just to be uncorrelated with the main driver of the market, which is the Mini SP. So… what other considerations about my portfolio?

Okay, I can show you that historical trading systems on the Mini SP, like this one, developed in 2017, which did very well in the previous year, at the beginning of 2022 did poorly and lost money. And this happened on different trading systems on the Mini SP, and this is the main cause of this drawdown at the beginning of the year. Then, as I told you before, when things started to go wrong, I found the energy, the will to develop new trading systems, to start to study again. So I come up with a good mix of strategies for the second part of the year.

Andrea
Francesco, sorry but this is... can I say it, bullshit? Because you see, this is the Interactive Brokers report, and you have to choose a benchmark among the futures, the ETF that is proposed by the broker, and he put the SPX, but his real benchmark is Andrea Unger's account. He cannot put it here. He saw my good start and his poor start and said, "oh, I have to beat him." So he reacted adding systems to his Titan mix and they did well in the second part.

Now, this is the third or fourth year, I don't remember, where Francesco shows a much better performance than I did. So he's definitely better than me, and this is clear. But I also have to say that he's younger, so more exposed to risk. And if I'm not wrong, my account balance is much bigger than yours, and obviously my risk approach to a larger sum of money is more moderate, so the performance necessarily becomes smaller. In any case, great performance Francesco, but don't be tricked by his words. He wants to beat Andrea Unger, that's all he wants.

Francesco
No, that's not true, definitely not true. Also I am becoming older and older, so I start to feel the weight of losing money in the market. When I was very young, I was very... how to say, prone to risk, okay? Now with the age, with the family, with children growing up, I know that I'm adopting a more conservative approach, I'm becoming more adverse to risk. But anyway, just talking about risk and just talking about being conservative, we can take a look at the crypto's portfolio, which is the best way to be conservative.

Andrea
Of course.

Placci and Cryptos

Francesco
So here we have the benchmark, which is Bitcoin. And we know that this was a very tough year for Bitcoin, minus 60-65% from the beginning of the year. And here is the performance of the portfolio of trading systems, mainly on Bitcoin, Ethereum, something on BNB and ADA, and so on.

So the performance is not so satisfying because we are talking about a +5% with 20% of drawdown. But anyway, compared to the benchmark, to the buy and hold strategy, which is very common in cryptocurrencies, I can tell you that this is satisfying, okay? So if I analyze my strategy, my portfolio from the very beginning, two years of trading on cryptos, I beat the benchmark in a very astonishing way, we can say, even if this year is not so satisfying. But you know what happened.

Until August, everything... like Andrea... Was fine. Then, in the last month of the year, the systems, which are basically trading systems on breakout logics, started to perform poorly. The reason is that the market didn't trend. As you can see, we have many months in, let's say, a horizontal trading range. And also, if you take a look at the chart, you can see a lack of volatility in the last months compared to the beginning of the year. So you know, intraday breakout trading systems, with a lack of volatility and a lack of directionality, they suffer. This is, I think, normal.

Anyway, for the new year, I will expect a better performance. I hope that there will be a new bull market. We are approaching the halving of Bitcoin. So maybe in the second part of 2023, I expect that this mix of strategies can perform better than in 2022 that, in any case, was a very tough year for cryptos. Everybody knows about Terra-Luna, about the FTX collapse, and so on. So considering all of that, I'm quite satisfied of this performance. What do you think, Andrea?

Results and final thoughts

Andrea
Of course you are. You did make money. You made more money than I did. I'm just kidding, of course! I saw one interesting thing here. We all trade our own accounts. Francesco trades his money, I trade my money. But if we put our strengths together, we would have made much better. Because if you remember, I had a better first part of the year… Apart from June, up to August everything was fine and my systems sucked from the last part of the year. While Francesco did very well in the second part of the year, his equity is rising, you see, from May more or less, and especially in the last months, he did very well. So actually, if we had worked together, we would have gotten much better equity lines on the common account, which we have not done. And we should maybe even communicate more because it's enough to communicate, not necessarily to trade money together, of course.

But this strengthens the point that diversification is very important. Diversifying more would have offered more opportunities to make money because you would have been there where the money comes from. Francesco did well on Coffee futures, especially because this is what he had in mind. I avoid Coffee because, okay, you know that Coffee is on ICE and you pay extra for the datafeed. I never wanted to do so not because I clearly don't like to spend money, but just because I believe I have enough systems on all the other markets. So I saw this as useless. Probably I was wrong because Coffee, actually, I know, but I don't trade it, is a very interesting market to put into the portfolio. Francesco made this choice and it was a winning choice, as you can witness from his equity line. Then again, diversification and communication, staying in touch with other traders is always a great opportunity to get new ideas or discover new ways to go. To insert Coffee could have been a choice also for me, which I did not and my account paid for this lack of reaction to the situation that was changing.

In any case, I'm also confident for the future because, as I said, I see something going in the right direction in the general behavior of systems in any case. I will have to work on Crude Oil, I will monitor Gold, and we will probably all meet in twelve months from now, hopefully showing better equity lines, in any case, than we did this year, and hopefully showing an Andrea Unger's equity line better than Francesco Placci's, which is really a must for this year.

Francesco
Okay. Thank you, Andrea!

Andrea
Thank you, Francesco. See you next year. Ciao.

Francesco
Bye, guys.

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