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BOOK YOUR FREE STRATEGY SESSION NOW >>In this video, we try to understand why having only one successful strategy is insufficient to make money in the markets.
At Unger Academy®, we always stress the importance of trading with a well-diversified portfolio. This means spending time and energy researching new opportunities and developing strategies in different markets and with different approaches.
However, when they get their hands on a strategy that makes them good money, many traders think that trading that particular strategy is enough to make money.
Unfortunately, that's not the case - and in this video, we will explain exactly why!
We will start with an open-code strategy for Bitcoin that has excellent performance and try to understand all the disadvantages of trading with one strategy, no matter how profitable and effective it may be.
Watch the video now to find out:
-Why it's always worth investing time and energy in developing new strategies
-The 2 most important principles to beat the markets
-How to manage the losing phases of strategies
Enjoy the video!
PS. In this video, you will find the rules of the strategy for Bitcoin: https://ungeracademy.com/blog/1970s-strategy-applied-to-bitcoin-does-it-work-the-result-youd-never-expect
Can we trade with just one strategy?
Hello and welcome to this brand new video. What you see on the screen is the equity line of a trading system, in other words, its profit curve.
The first part of the curve is what was generated during the system study. On the other hand, the last part is what it produced in real trading, that is, in out of sample.
It's a code that we developed together in a previous video.
I'm referring to the end of 2021 and the system worked on Bitcoin.
If you want, you can go to the video and get the code we developed.
It is a straightforward code based on very old rules. However, as you can see, it has kept more or less the same characteristics even post development.
And so here is the provocative question in this video: why continue to develop anything else when we have a winning strategy on the market?
Does it make sense to focus all on one system, and why?
Why shouldn't we focus on this system that is still earning and is near its equity peaks, and should we worry about continuing to develop new systems?
We'll try to answer that in this video.
One of the coaches at Unger Academy here and the first thing I feel like telling you is that nothing is forever, not even a trading system.
Why there is no certainty that a strategy will always make money
When we develop a system and see that the development is good, that is, our strategy is able to exploit the nature of the underlying instrument, so it depends on the nature of a specific market,
we must be aware, however, that from the moment we started using this strategy, it could break down at any moment.
This is because the market could change. Both the actors who are part of this market could change, but the market itself could also change.
It may change behavior due to certain events we can't predict.
I can't predict a conflict between one nation and another, or I can't know what political decision will be made in the next few years that may generate market changes and mutations.
In a nutshell, I don't have a crystal ball, so how do I deal with the trading world if I don't have a crystal ball and can't know what the future offers?
Indeed, the first thing to do is not to focus on only one trading system.
Losing periods
While what we see on the screen right now is a successful approach, certainly it isn’t enough.
This isn't enough because although this system has made money and generated profit since when we introduced it, it's also true that this may not happen again tomorrow.
This system, instead of generating profit or staying, shall we say, "flat," thus causing neither gain nor loss, could begin to create a loss systematically.
We can't know this, of course.
I would then like to present another aspect that not everyone talks about, perhaps because it's a bit unpleasant.
We said this is a rising equity, and it is really nice because it starts from the bottom and goes up.
But what happens in between? There are excellent periods of gain, like this one,
but there are just as many periods of loss, as this one, for example.
And these periods of loss, if we go and see in detail how long they last, they last a long time.
Let's imagine that we are in this situation here.
So, we are in October 2019. We decide to trade this strategy because we know its past. However, we don't know the future.
So, let's imagine that we are in this situation. Let's start using the strategy… and we start losing money.
We lose, then regain. In short, we go nowhere.
We find ourselves in October 2020, one year later, where the result generated by this strategy is losing.
So, we, without knowing what might happen in the future because we do not have a crystal ball, are faced with equity that seemed to be promising but then went nowhere.
So, what should we do? It’s clear that in hindsight, backtesting what has already been, I see that this approach would have paid off and it would have been a winning approach because an excellent period would have followed shortly after that.
We could say the same thing here, for example.
Here we see that right around the time of the publication of our system, that is, it was October 2021, more or less..
This system had some drawdowns and some systematic losses that lasted until April of the following year.
From then on, it steadily recovered and had some ups and downs. However, it maintained very well in terms of performance.
System Management
So, in other words, what's missing here is the system management because the equity line can be good or bad, but only in hindsight.
I can say that it’s nice only because it has generated profit in the past. However, I want it to generate profit for me in the future.
So how can I be profitable if I only have one system and I'm not sure if this system will produce profit for me in the future?
Obviously, I’m starting with an advantage because, having done a backtest and since it’s systematic trading, I can simulate all the past trades, so I can be sure of what has happened in the past. Therefore, I can be sure that this approach has been successful so far.
But no one can tell me that this approach will continue to be successful.
For this very reason, two things are needed.
The principle of diversification
I have already talked about managing a trading system during live trading. The second thing is to diversify risk, that is, to bet on multiple winning horses.
Even the best systems encounter their dark periods.
No certainties, but statistical probabilities
So, the key concept I wanted to pass on to you is that if you find an amazing trading system, you must know that you can't put all your eggs in one basket.
All the more so, if you also have a basket of systems, you may not necessarily start earning from tomorrow.
There is no mathematical certainty, but there’s an excellent probability.
And we work precisely with probabilities over a very long-time horizon.
Evaluation of strategies
And with that, I recall the last concept that by now you will have understood, which is to be able to judge a strategy not so much by the wrong week or the wrong two weeks but by the behavior that it has had in sample or out of sample up to now.
You can’t judge a solid or weak team by one game. You’ll judge it on the league and its long-term result.
We also need criteria for when to replace players.
I have to know I have an objective criterion that tells me that this trading system is no longer performing well and that I must be ready to replace it.
That’s why it’s essential to have a method of building and selecting systems.
That's what we do at Unger Academy, and if you would like to explore these topics as well, I’ll leave a link below the video from which you can access some handy resources.
You can get a copy of the book "The Unger Method" covering only the shipping costs, or book a free strategy consultation with a member of our team.
Thank you so much for listening, and I look forward to our next video with new trading insights. Until then, goodbye!
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.
