In addition to the type of approach (trend following, reversal, bias), it's also essential to carefully consider the time frame used when developing a trading system. Indeed, changing this parameter changes both bar duration and the opening, closing, high and low values, which leads to significant differences in the number, duration, and result of trades.

In this video, we'll show you a simple and effective method to determine the best time frame for your strategies. This is all explained with an example strategy for Gold futures, open-source code and step-by-step explanations!

Enjoy! 😎

Transcription

Introduction

Hey everyone, and welcome to this brand-new video! So, where do you start to develop a trading system, and what are the most effective research methods to build a good strategy?

One of the coaches at Unger Academy here, and in this video, I’m going to be showing you an example to pique your curiosity and give you some interesting ideas for developing your trading systems.

Alright, so in previous videos on this channel, we’ve already discussed the importance of paying attention to the main characteristics of the markets where we want to build our strategies.

For example, we know that commodities and metals lend themselves well to breakout strategies.

It’s a well-known fact that with commodities like Gold, it can be convenient to buy at the high or sell at the low of the previous session.

But have you ever tried to apply the same concept to a different time frame?

I’m not referring to a Donchian Channel, so a channel that is built by tracking the highest highs and the lowest lows of the last N periods. Rather, I'm talking about looking for values that are somewhat analogous to those used for previous sessions but equally lead us to statistical advantages.

Here you can see... I’ve uploaded 6 different charts with the same strategy inside, which I’ll show you shortly.

These are all charts for Gold, and all of them are at 5 minutes. I used this double chart to calculate the time frame here below but still leave the trades on the smaller 5-minute time frame to have a better definition of the trend of the trades.

And also to avoid minor errors that sometimes might happen during the backtest.

So, as I said, we have 6 charts. The first chart with a 60-minute "data2".

The second is at 120 minutes. The third is at 480 minutes. The fourth is at 960 minutes.

Then we have the daily and two-day time frames.

The Starting Strategy

The code is exactly the same for all 6 charts, as I told you, and it is simply this one that you see here.

We have an "if true" and then the instruction to always do this: buy at the next bar at the high of data2 with a stop order and sell at the low of data2 at the next bar with a stop order.

What does this all mean? Well, it means that, as far as the chart below is concerned, which has a daily time frame, we’ll actually go and buy or sell when there's a breakout of the price levels of the previous session.

Because in this case, a "day" simply means "a session".

Here, for example, we open a short position at a level that coincides with the low of the previous session and we open a long position, for example, at the level that coincides exactly with the high of the last session.

So let's start from this result, which is the most classic, the most typical, if you will.

For Gold, we can say that the results are quite good, in the sense that with two lines of code, ignoring this condition, which is always true, we have 1400 trades with an average trade of over 100 dollars.

Of course, that’s still not enough to cover the costs related to slippage and trading commissions. However, this is certainly an excellent starting point.

So at this point, it'd be interesting to go and see what would happen if we applied the same concept to other time frames.

For two days, for example, we look at the results. For example, they get a little bit worse. You make fewer trades because there are fewer bars at data2.

We have a $70 average trade and the equity line… Well, I guarantee you, it's pretty ugly. I mean, just look at the last part.

Let's have a look at the "opposite" case, that is to say the 60-minute chart. Let me show you the result.

The performance we get in this case is really terrible. To such as extent that, seeing this equity, you might get the idea to do the exact opposite. However, I guarantee you that even if you do the opposite, the result is still awful.

Let's go and see what happens with the other time frames, this one at 480 minutes and this one at 960 minutes. And you see, the results are pretty good.

With the 960 minutes, for example, we have three bars per session instead of one bar per session.

We have a relatively low average trade, but still, the trades are quite a lot, 3200. And in the case of the 480-minute time frame, there are even 4800, so almost double.

You can see that the equity curve is still going up at 480 minutes. It's very flat here. And it did very well in the first half of 2011, and it's normal to see that with this underlying asset, which had a pretty good year in 2011. But still, the equity curve is a good one.

So I’d say right on this 480-minute time frame to add a condition and see what happens.

I remind you that we’re starting from a different condition than what we saw on the daily time frame at data2 because in this case we have 4800 trades instead of 1300.

So, it also makes it easier to filter out the trades that are, let’s say, the least profitable or the least efficient.

Volatility Filter

Those who have already seen some of our videos here at Unger Academy know that one of the best and most effective filters, as well as one of the easiest attempts to get strategies to break out - not by overfitting, of course, but by following the characteristics of the market - is to go and apply some kind of, let's call it, "daily factor."

In this case, it would be a factor, as I’ve written here, applied to the 480-minute bars.

We simply say that the body of the last 480-minute bar must be smaller than the range of the same bar by at least half.

So, the body must be smaller than half the range of the last 480-minute bar, that's what we're talking about.

If that’s the case, I’ll enter long and short at the extremes of that bar.

For example, let's go and apply this concept and let's go and see the result on the 480-minute chart.

I'll show you. We reduced the number of trades. We went from 4800 to 3400.

The average trade has already more than doubled. It’s at 72, and the equity is already very good. Where it was flat before, now it’s starting to grow.

Now here's the trading tip that I wanted to leave you in this video: start with elementary logic and apply it to multiple time frames.

We’ve seen that applying this logic to an hourly time frame only leads to harm. So adding this condition does nothing - the system was losing before and is failing now as well. It’s a losing system on the hourly time frame.

On a daily time frame, it works. It’s a large average trade but with few trades. So, we should start filtering it from 1000-1300, and already from there.

But there is also a very interesting middle ground, like this with the 480-minute time frame.

Final Thoughts

And so, the invitation I’d like to leave you with is to try to take advantage of all the peculiarities of the market, even see what might be the best time frame for trading.

But remember: always with simple rules like the ones you’ve seen in this video.

So, if you need help to start systematically investing in the markets as we do, I recommend you click on the link below.

It will take you to a page with some really handy resources. From there, you can sign up for a free presentation by Andrea Unger or get our best-seller book, "The Unger Method," covering only the shipping costs. You can also book a call with a member of our team to get a free strategy consultation if you wish.

Finally, I’d also like to remind you to subscribe to our channel, if you haven’t already done so, so that you’ll be promptly notified when new content and videos are released.

With that, we thank you so much for watching, and will see you again soon! Bye-bye!

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