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R I S K V S R E WA R D

Insightful strategies from a World Cup Trading Champion

Andrea Unger

ABOUT ME

! Andrea Unger

! *1966

! Master of Science degree in Mechanical Engineering - 1990

! Employed from 1992 to 2001 in technical/commercial

! Positions at multinational companies

! Full time trader since 2001


SOME 1ST PLACE 61%
European TopTraderCup

SUCCESS
2005

S T O R I E S

1ST PLACE 672%, 115%, 240%


World Cup Championship of Futures & Forex Trading
2008 - 2010

F I R S T I TA L I A N B O O K
ON MONEY MANAGEMENT
SOME
SUCCESS
S T O R I E S
SOME
SUCCESS
S T O R I E S
SOME
SUCCESS
S T O R I E S
SOME
SUCCESS
S T O R I E S
SOME
SUCCESS
S T O R I E S
SOME
SUCCESS
S T O R I E S
VA R I O U S
T Y P E S O F R I S K
H O W D O E S I T W O R K ?

MARTINGALE

To increase units after a loss and to decrease after a Loss

ANTIMARTINGALE

To decrease after a loss and to increase after a win


H O W D O E S I T W O R K ?

MARTINGALE
A psychological aspect of thinking that a trader should double their losses after each
losing trade in order to return the trader to a profitable state. This is the false belief that
after a losing streak the probability of having a winning trade increases, and vice versa.

In reality, every event has the same probability!


H O W D O E S I T W O R K ?

ANTIMARTINGALE
This method tries to take advantage of winning periods and protects the capital during
losing periods. An easy approach to this is to use a constant percentage of risk.

For example:
A 2% risk of capital is equivalent to increasing exposure after a win and reducing it after a
loss (after a win the capital increases and so does the 2%. Likewise, when the capital

decreases, so does the 2%).


M A R T I N G A L E E X A M P L E

$$$$$$$$$$$$$$$

}
}
}

first bet
$
No money left
second
bet
$$
third bet $$$$ $$$$
fourth bet
$$$$

Martingale would make sense only in


cases of infite capital, but since this isnt
possible, why waste our time with it?...
THE POWER
O F P O S I T I O N S I Z I N G

To use the AntiMartingale approach, the most typical method is to fix the percentage of
risk per trade and then size the position accordingly.

Does this approach produce consistent results in any case?


THE POWER
OF POSITION SIZING Strategy 1
THE POWER
OF POSITION SIZING Strategy 1

Basic Strategy with fixed
100.000 lots

Final profits become


4 times greater

Position Sizing applied


with 1% risk per trade
THE POWER
OF POSITION SIZING Strategy 2

THE POWER
OF POSITION SIZING Strategy 2
Basic Strategy with fixed
100.000 lots

Here as well, final profits


become more than 4 times
greater

Position Sizing applied


with 1% risk per trade
THE POWER
OF POSITION SIZING Strategy 3

THE POWER
OF POSITION SIZING Strategy 3
Basic Strategy with fixed
100.000 lots

What happened?
Final profits are
10 times LOWER?

Position Sizing applied with


1% risk per trade
THE POWER
OF POSITION SIZING Strategy 4

The low number of trades


from the previous strategy
may have compromised the
leverage effect. Lets now
analyse a strategy with many
trades
THE POWER
OF POSITION SIZING Strategy 4
Basic Strategy with fixed
100.000 lots

It doesnt work, final profits


are still lower then the
original...

Position Sizing applied with


1% risk per trade
THE POWER
O F P O S I T I O N S I Z I N G

A simple fixed percentage risk on every trade leads to completely different scenarios
depending on the strategies

Length of positions and the maximum losing position have a strong impact on the final result

A valid alternative would be to adjust the positions size based so far on the maximum losing
trade, on the worst day scenario

Doing it this way, we base our exposure on the maximum percentage of loss our equity
could have on any given day
THE POWER
O F P O S I T I O N S I Z I N G

Strategy 1 Strategy 2

Strategy 3 Strategy 4
Diminishing Risk from 2% to 1.5% and putting it all together:
THE POWER
OF POSITION SIZING Strategy 1
THE POWER
OF POSITION SIZING Strategy 2

THE POWER
OF POSITION SIZING Strategy 3

THE POWER
OF POSITION SIZING Strategy 4

THE POWER
OF POSITION SIZING Portfolio of 4 strategies

C O N C L U S I O N S

Final shape of leverage Equity curve changes depending on various parameters:


- Stop Loss
- length of trade
- Number of trades
- Maximum loss

Single lot Strategies may lead to similar results, but once Position Sizing is applied
the scenario may change dramatically

To properly mix risk and reward, it is a good idea to focus on the expected loss per period
rather than a single trade loss, this leads to a better equity line development

Once all this is put together, the cooperation effect leads to skyrocketing profits
C O N C L U S I O N S

TA R G E T

Higher % of risk on each trade Lower % of risk on each trade

Higher Return High drawdown Soft growth Slower returns

Faster Return Risk of ruin Steady income Lower equity increase


the purple forex company

www.axiory.com