Strategies on Gold that Balance Each Other - Diversify Your Trading Portfolio

by Andrea Unger | The Trading Show

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Gold is one of the most important markets in the commodity sector and is often chosen as an investment or underlying asset to build trading strategies on. In this video, we discuss two interesting gold futures strategies, not only in terms of their performance but also because they seem to balance each other out.

In conditions where the first strategy suffers, the second strategy performs well, and vice versa – a handy feature to diversify our portfolio!

By watching the video, you’ll discover:
-The rules of the first strategy (intraday, trend-following approach)
-The rules of the second strategy (mean-reverting approach)
-The performance of the two strategies
-A real-life example of how they balance each other out

Enjoy! 😎

Transcription

Hello everyone and welcome back to our usual chat about the strategies in our portfolio that have performed the best over the past period.

Alright, so this week, I want to talk to you about the Gold futures, that is, the futures that track the price trend of Gold, which of course, is an extremely important underlying asset in the commodities basket.

And we can say that over the last few years, this market has worked in alternating periods and with very different types of strategies.

So in today's video, we're going to be seeing two strategies for this market. Both work on a 5-minute time frame but are based on opposite entry approaches.

The first strategy we’re going to be looking at is based on a trend-following approach, while the second one is based on a mean-reverting approach, meaning that it will enter in an opposite way to the first one.

But let's go in order and let's start with the first strategy.

This system was developed six years ago, in 2016, more precisely in November. So almost exactly six years ago.

And let's say that over the years, it has made some good gains.

This is an intraday strategy, so the positions are all closed at the end of the session.

This strategy enters both long and short positions and it does so when the high or low of the previous day is crossed.

By the way, this strategy is available to all our students and is part of the basket of our students' strategies.

Anyway, over the years, this system has undoubtedly proven its worth, especially in times of high volatility, such as it happened in 2020.

If you remember, during the pandemic, Gold futures were very explosive and volatile, as well as other markets, and so you could get some pretty interesting results
with the trend-following strategies of course, which we know need those explosive movements as well as a good level of volatility to perform well.

This strategy... Well, this strategy goes both long and short, as we mentioned earlier.

And as you can see, the long curve is the one that has suffered the most in the out-of-sample period.

However, it seems that it's improving and getting more in line with the in-sample.

As for the short curve, on the other hand, it certainly performed better.

Now, there's a thing that I find particularly interesting about this strategy. Take a look, when has this trend-following system suffered the most?

It was in times of low volatility. For example here.

While instead, it’s worked very well in times like this. So, as you can see, when volatility has increased, this strategy has been able to benefit from that, to exploit that, if you will.

In the last period, again, volatility was pretty low.

And now it seems that it's going up a little bit.

So, we can see that when price movements become more explosive and longer, this kind of strategy is able to take advantage of that.

But let's turn to the next strategy, which, as I mentioned, is based on the opposite approach.

So, if in the previous case, we used to enter long on the previous day's high, we’ll now enter short at that same level when a false breakout occurs, and I'm sure you all know how that works by now.

The time frame is 5 minutes, again, but the signals, meaning the false breakouts, are calculated on a secondary chart that has a 15-minute time frame.

The reason why we do that is to limit the number of false signals one might receive when trading this strategy.

But let's take a look at the results of the strategy.

Also in this case, it’s interesting to see how this system, which I remind you is based on a reversal logic, performed during the pandemic period.

You can see that the system performed quite poorly during that period, so we can say that this strategy works very well together with the previous one that we've just seem, which instead made us money in that same period.

This system was developed in 2018, and, as I mentioned earlier, it didn’t work very well for the first couple of years of out-of-sample,
whereas in the last few years, the more recent years, you know, years where the volatility was lower...
You see, this system suffered during this period in 2020, and equity went down. While in more recent years, where price movements were more limited, this mean-reverting strategy has worked much better.

So, guys, if you want, go and give it a try too!

And if there is anyone among you who is 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, the only 4-time World trading champion in real money trading, or you can get our best-selling book, The Unger Method, by just covering the shipping costs, or you can even book a free call with a member of our team.

If you did enjoy this video, please leave us a Like, subscribe to our channel, and go and click on the notification bell to stay updated on the release of all our new and upcoming videos!

We really thank you so much for watching and will see you soon in our next one! Bye-bye!

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.

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Andrea Unger

Andrea Unger

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.