The problem with trends in trading
Hi, Andrea Unger here.
Today, I want to talk about one aspect from trading.
Sometimes, most often, I get approached by people who believe that trading is related to a single instrument or a simple technique.
For example, now, depending on the periods, now it’s the period of crypto.
Many people write to me and they think that the only trading is in crypto. They ignore all the rest.
They even think it doesn’t exist. They just think trading is cryptocurrency trading.
In the past, this was true for Forex, for example. Everybody thought that only Forex was trading.
They were measuring everything in pips or in leverage. They ignored the stocks, the futures, no, Forex.
This depends obviously on the moment, on the media, what they are telling you, where you believe there is more opportunity.
In crypto, we talked a lot lately about. So obviously people think about the potential of that world and they start from it.
But the problem here is all these people start from the performance or from the potential performance.
They forget about how to get there.
They just try to bind their arrival point to the starting point with a unique line, and they believe there is a unique line.
They ignore if that line is fine with them, if they can cope with that line, and most often they end nowhere.
Why choosing the right instrument matters
The point is that there is so much out there in the trading world that you really can choose depending on your objectives, on your aims, on your desires, on your plans.
You know, for example, I’ve been trading for many years, systematic trading on futures.
Andrea Unger’s personal experience with futures and options
I chose futures because they offer, from my point of view, a wide diversification, much better than stocks.
In fact, I ignore stocks because I trade index futures as well.
I ignore stocks because I believe that when there are important moves in the market, in the end, there is no longer diversification.
All stocks go up or all stocks go down. And while on futures, you have… Imagine commodities: grains, metals, energy, you have so many sectors, so many things that you can really find something that is not correlated.
Well, in extreme cases, there might be correlations. So they are imagining world’s indexes or energy.
But these are really extreme cases. So generally, diversification on futures can be treated in a much better way than on stocks.
That’s why I concentrate on futures. But there are so many other things to do in the trading world that sometimes I wasn’t interested in looking further.
Why he initially overlooked options
And just to give you an example, there is the whole world of options. I started with cover warrants, which are sold as options, but that was a trick.
It was a video game against inefficiencies. So I knew what they were, but I didn’t consider that as option trading, of course.
A friend of mine, an expert in the options, he claimed that I would be a good option trader.
So I started looking into that with no real interest. I just looked into that and on one side, I thought it was complicated.
So much math and Nobel Prize who developed the formula. It was too complicated.
Or on the other side, it’s too simple. There’s two options, put and calls. If it goes down, you need a put. If it goes up, you need a call.
So I said, okay, I understood what the basics are. I understood what this instrument is supposed to do and what that instrument is supposed to do.
Now, what am I supposed to do?
I didn’t find a way to build a plan because I said, okay, if it goes up, I have to buy a call, but it has to go up further than that.
And how much should I invest? There was a clear obstacle in deciding what to do and how to do it.
So I didn’t like that. It was strange, in my opinion. It was weird, really. And I left it.
Then I was lucky to become a part of Francesco Placci in Unger Academy, and he’s a real expert, and he explained me how options should be used, and that opened a world to me.
Now I know how to use them. I know how to I put them together to get what I want to get.
This is completely different from the pure simple theory of what they do.
It’s a way to put them together in creating structures which are supposed to deliver a specific type of performance.
The difference between systematic trading on futures and mechanical trading on options
This is a different world, and it’s a fascinating world.
I definitely started trading options together with my trading systems in the futures because I really liked this kind of diversification. So, I did it.
And what are the pitfalls of it? In futures trading, in a very good year, you can get a triple-digit return.
It can happen. I mean, there is nothing that keeps you from getting 100, 200%. It’s possible, even with a contained risk.
In options, with this kind of structured strategies, it’s much harder.
It’s much harder because you can get a very good year with a 60%, but more than that, it becomes really, really difficult unless you take enormous risk, which is not the case, of course.
I don’t want to take risks in any case which are excessive in any kind of trading.
On the other hand, if you look at the equity line deriving from the options trading, you find a pleasant smooth line going up.
It goes up because you have good strategies, of course. While on futures, it still goes up, but it’s much more of a roller coaster.
Key factors to consider when making your choice
I mean, if your heart is not strong enough, that kind of equity line might disturb your nights while options trading is much more pleasant in its way to go.
So this is another thing to consider. And in my age, I mean, quite grown, it’s better than the roller coaster. I’m no longer in my 20s.
Just think about that. When you choose a trading approach, you also should think about your aim.
What was your aim? Do you want to multiply your capital? Then maybe futures is the right way to go.
Do you want something that goes stable up but still does good enough? Options can be the answer.
Want something that beats inflation, goes up, slowly beats the benchmark? Alocation with ETFs.
So you understand there is much, much to discover.
Something very aggressive: cryptos where you pick a crypto and you hope it goes to the moon.
I mean, everything is possible. The important is that what you choose has a plan built on top of it, so that you know in what direction to go.
Try to avoid opinions in trading. Just base everything you do on rules, specific rules, so you know where you start from, where you are, and where you’re going to, and how we are going there, if you’re going the right way.
This is so important, because this is a way to eliminate stress, or at least a major part of stress, because you don’t have to make decisions during the trading activity.
You only make decisions when you prepare the plan before placing the trades into the market.
Why management matters more than just percentages
And then you don’t just have to think about the way the performance looks like, but also about how you have to structure yourself to do so.
Imagine you are a computer nerd. You love computers. You love juggling around with the software. You love playing around with all sort of machines.
Then systematic trading on futures, automated trading is for you, definitely, because you get everything you love there, really.
If you hate computers, if you hate everything that is automated, that might not be the right choice, even in case it delivers good performance.
But that performance will come with enormous stress of the way you get there.
In that case, mechanical trading, where you still have precise rules, but you simply have to place the order when it’s time to place it, you’re clicking with a finger on the mouse, that’s a different world.
If you hate computers, you have just to place the order. That’s it.
You understand the difference.
I mean, you have to cope easily with what you do, and so you have to make choices also thinking about the way you do it.
The importance of a methodical approach
So this is so important, again, provided you have everything on a proper plan. This is the most important thing.
And to build a plan, you need something which is a methodic with a clear cause. No opinions, just clear cause.
That’s it guys, there is much more than a single instrument or a single technique. There is a world out there.
To discover that world, you have to discover yourself first and then approach it and find the right way to go and to train.
Good luck with your training.
Ciao from Andrea Unger.
