RISK VS REWARD Insightful strategies from a World Cup Trading Champion

Andrea Unger    

A B O U T M E

!   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

1 S T P L A C E 6 1 % European TopTraderCup

2005

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 O N M O N E Y M A N A G E M E N T

S O M E S U C C E S S S T O R I E S  

S O M E S U C C E S S S T O R I E S  

S O M E S U C C E S S S T O R I E S  

S O M E S U C C E S S S T O R I E S  

S O M E S U C C E S S S T O R I E S  

S O M E S U C C E S S S T O R I E S  

S O M E S U C C E S S 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 ?  

M A R T I N G A L E

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

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

To decrease after a loss and to increase after a win

H O W D O E S I T W O R K ?  

M A R T I N G A L E

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 ?  

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

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  

Martingale would make sense only in cases of infite capital, but since this isn’t possible, why waste our time with it?...

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

$ $ $

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

No money left  

} } } first bet

second bet

third bet fourth bet

T H E P O W E R 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

Position Sizing applied with 1% risk per trade

Final profits become 4 times greater

THE POWER OF POSITION SIZING – Strategy 2  

THE POWER OF POSITION SIZING – Strategy 2   Basic Strategy with fixed

100.000 lots

Position Sizing applied with 1% risk per trade

Here as well, final profits become more than 4 times greater

THE POWER OF POSITION SIZING – Strategy 3  

THE POWER OF POSITION SIZING – Strategy 3  

Basic Strategy with fixed 100.000 lots

Position Sizing applied with 1% risk per trade

What happened? Final profits are 10 times LOWER?

THE POWER OF POSITION SIZING – Strategy 4

The low number of trades from the previous strategy may have compromised the leverage effect. Let’s now analyse a strategy with many trades

THE POWER OF POSITION SIZING – Strategy 4

Basic Strategy with fixed 100.000 lots

Position Sizing applied with 1% risk per trade

It doesn‘t work, final profits are still lower then the original...

T H E P O W E R 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

T H E P O W E R O F P O S I T I O N S I Z I N G  

Diminishing Risk from 2% to 1.5% and putting it all together:

Strategy 3  

Strategy 2  

Strategy 4  

Strategy 1  

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  

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

Higher Return

Faster Return

High drawdown

Risk of ruin

Soft growth

Steady income

Slower returns

Lower equity increase

T A R G E T

the purple forex company

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