# Intraday mechanical trading



## nizar (22 October 2007)

Does anybody here trade intraday using a mechanical system?

Just curious to know what % returns you been pulling and what markets you trade?

I can't see any reason why a trend following method that works on daily or weekly bars won't work on 1-minute or 5-minute or 15-minute bars.

But trading smaller timeframes seems (to me) to hold alot of potential as it could increase trade frequency and significantly decrease market exposure.

Using 5-minute bars, a MASSIVE trend would be, say 100 bars thats less than 2 hours so you could even set it up so you exit all positions before the daily close. This way you're not exposed to nasty overnight gaps.

Of course potential costs of this sort of daytrading means significantly higher brokerage fees and real time data which is also quite significant.

But maybe its worth it if you have a good system?
Maybe not.
But definately worth consideration IMO.

Any thoughts?


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## >Apocalypto< (22 October 2007)

nizar said:


> Does anybody here trade intraday using a mechanical system?
> 
> Just curious to know what % returns you been pulling and what markets you trade?
> 
> ...




I would keep it off FX Nizar, as there are nasty spikes that turn back to nothing.

cheers


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## nizar (22 October 2007)

Trade_It said:


> I would keep it off FX Nizar, as there are nasty spikes that turn back to nothing.
> 
> cheers




Yes I never planned on venturing out of stocks, at least not in the forseeable future.


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## rub92me (22 October 2007)

Not many stocks on the ASX that have enough volume & volatility to make this work I think, unless you use substantial leverage. Maybe contemplate using futures on a 2-5 day timeframe? I'm building and testing one; will take me a couple more months to complete though - not enough spare time.


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## nizar (22 October 2007)

rub92me said:


> Not many stocks on the ASX that have enough volume & volatility to make this work I think, unless you use substantial leverage. Maybe contemplate using futures on a 2-5 day timeframe? I'm building and testing one; will take me a couple more months to complete though - not enough spare time.




Thanks for your thoughts.
Yeh sounds about right the point you raised?

How about the Yanks?
Brokerage would work out cheaper as well.
But then Iv got to deal with the whole currency issue....
Hmmm...


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## professor_frink (22 October 2007)

nizar said:


> Yes I never planned on venturing out of stocks, at least not in the forseeable future.




you could try the SPI Nizar- near on 24 hour market so not much in the way of gaps, no trading halts for days on end, not much in the way of savage news related spikes(compared with FX), lots of available leverage and dirt cheap brokerage(compared with stocks).


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## julius (22 October 2007)

Finding markets that exhibit the right depth, participant & volatility characteristics to suit this kind of system is very difficult.

FX is the obvious choice but to my knowledge consistently profitable systems with realistic slippage are hens teeth.

Another problem is that retail sized account traders using mechanical entries are open to manipulation by market makers.

Maybe Dr. Bandy can shed some light ?


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## tech/a (22 October 2007)

Nizar.
Yes you can do it (Create a short term system) with stock as well as Forex/Futures/Indexes/Currencies/Metals anything you like with enough data to give you statistical significance.

BUT
You really have to alter the way you think from the longer term systems approach.
This took me years.
Smaller timeframes will have you severely effected by market noise.

The biggest hint I can give you is the Reward to Risk becomes the all important key.
Frequency of trading will increase.
Winning % will increase.
% gain will decrease each trade.

While you can code a system I have found that using the principals of  a winning system and trading in a discretionary manner gives greater return as you have the flexability and speed of the mind.


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## wayneL (22 October 2007)

Gold and Oil can be great to daytrade at times too.

I have 8 - 10 charts up; indices, gold, oil, grains, bonds etc and pick the one(s) that are setting up right for the way I trade.


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## nizar (22 October 2007)

julius said:


> Finding markets that exhibit the right depth, participant & volatility characteristics to suit this kind of system is very difficult.
> 
> FX is the obvious choice but to my knowledge consistently profitable systems with realistic slippage are hens teeth.
> 
> ...




Julius.
Thanks for your thoughts.

This is a long term plan for me. I will be setting up my primary business first (outside of trading) for maybe the next 8-10years. Then after that I maybe will have some time for intraday trading.

FX and futures and SPI you need plenty of leverage.
Unleveraged maybe you need $1mil+??

But I could be wrong here. I still need to study other markets (besides stocks) in greater detail if I have to ie. if this mechanical intraday system is not viable for stocks.

So in 8-10 years time, I will be giving intraday mechanical trading a serious crack (For now my weekly system will do me, and Im not going to have much time to trade after November 19). But anyhow, be assured by the time I do start, my account will not be "retail sized" 

Tech/a.
Thanks for your thoughts, I never expected this to be easy or quickly grasped.
But luckily when it comes to time, Iv got plenty.


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## nizar (23 October 2007)

Just having another think about the potential of this.

Compared to longer term systems, short term (intraday) systems tend to have win rate >50% and (average win/average loss) < 2.

So say we had a system using 5-min bars that traded 10 times a day.
Initial capital say $200k.
Each position $20k.

You have 60% winners, with on average each winner being about 4%.
The rest (40%) are losers, say they are each 3%.

So 60% winners and (average win/average loss) is 1.33
Each win = $800
Each loss = $600

If you trade 10 times a day on average thats:
($800*6)-($600*4) = $2,400

Say brokerage $30 each way.
So $600.

Nett = $1,800 per day.

The problem here would be finding stocks that even have 10% daily swings. On ASX this may be a problem for the bigger stocks that Im targeting.

US stocks i heard have greater volatility so its maybe a goer there.

Then i thought -- what about CFDs??

You could control alot of capital without much cash. So maybe you wouldn't need $200k.

Is there even interest payable for CFDs intraday??

(I know nothing about CFDs)

Im not sure if you could test using 1% leverage with Amibroker but If you cant -- well then after backtesting unleveraged I'd have to paper test for a while.

A couple of weeks of trading is 150 trades so enough for statistical significance.

One thing which would really destroy you with CFDs is a string of losses though.
How many can you handle?
Probably not many with 1% lol
So something to be careful about.

But this is where the backtesting and validation techniques come into it.

Anyway -- What does everybody think of this?

Unrealistic?? 
Doable?

Any thoughts would be most welcome.

Im excited. LOL


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## Temjin (23 October 2007)

Just for your information Nizar, I am still (and STILL ) in the process of developing a mechanical intraday futures/commondities trading system. There is no way I would develop a similar sort of system for stocks at any time soon due to the lack of extreme high liquidity and leverage ability candidates. (as Tech/A mentioned)



			
				Tech/A said:
			
		

> While you can code a system I have found that using the principals of a winning system and trading in a discretionary manner gives greater return as you have the flexability and speed of the mind.




Can you further elaborate on that for us, Tech/A? 

Do you mean discretionary trading or in the design of the trading systems? 



Ohh Nizar, think in terms of 1R.  Short term trading definitely have higher percentage wins but lower reward/risk ratio per trade. You will have to make it up with more trades. 

As for the leverage using CFDs, think of it that the use of leverage allows you to start trading and fully utilise your money management strategies with LESS CAPITAL.

Example: You may need $1 million dollar to trade a particular system on stocks alone. That includes all the associated money management strategies that you have backtested and give you the confidence to trade this system. But with leverage, after cost, you found out you could do the same thing for just $100,000 dollars instead.  

That's how I treat leverage.


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## nizar (23 October 2007)

Temjin said:


> Just for your information Nizar, I am still (and STILL ) in the process of developing a mechanical intraday futures/commondities trading system.




Then its a good thing I gave myself plenty of time


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## >Apocalypto< (23 October 2007)

nizar said:


> Then its a good thing I gave myself plenty of time




Don't worry Nizar each man picks up things up at a different pace to the other!

you might hit it real quick!

The main reason I could never get into systems trading is cuz I love the thrill of the hunt!

Good programing to u!


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## julius (23 October 2007)

Hi Nizar,

I have seen a few couple of very impressive high frequency trading systems but none were able to generate consistent profit once brokerage was factored in. This was FX and a couple of different markets.

While exposure decreases with greater frequency, slippage generally doesn't scale and can really bite you in the ****!

What about lower frequency, high probability intra day sets up?


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## tech/a (23 October 2007)

> Can you further elaborate on that for us, Tech/A?
> 
> Do you mean discretionary trading or in the design of the trading systems?




What I mean is you become systematic.
Your trading becomes based around R/Ratio's.

Ive been fortunate enough to have ben educated in this method of trading using a combination of Elliott and VSA.
While Nicks seminar covered a lot of ground,other members have spent time with me opening my eyes to a form of trading I hadent contemplated.

I and others have invested a great deal of time and Money in honing our skills.Still doing so.
The potential for a professional exponent is enormous.
I describe it as a finness.
I'm not going to go into great detail due to the above (Time money and confidences shared).
But I will say that it is very possible to have very high win rates (70-80%).
Great R/Ratio's and in this sort of trading anything above 2 is fantastic.4 and more is achievable---consistently.

This is where your analysis skills (Application of Money Management and understanding of how to run the business of trading) turns you from a trading hobbiest to a trading master (Not that I'm there yet).

You can trade any timeframe any market and any instrument with confidence of profit.Its no longer a mystery.

The combination of the 2 technical analysis disciplines is the best I have seen.
Coding and systemising it will kill the potential.
Sure it will and can be profitable but not toward the highest achievable results.
WHY.
Systems work on inputs.
Apply the inputs over and over and an expected return of X can be achieved.
However you are hog tied by the rules and the blueprint.
Profitable---yes and can be spectacularly so.Possibly all most want or need.
The best you can achieve---no.


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## wayneL (23 October 2007)

This thread reminds me of Acts 9 ::


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## tech/a (23 October 2007)

Just googled Acts 9 cant see relevence.
Care to enlighten me?


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## weird (23 October 2007)

I remember reading a trading blurb from a successful trader, and one of his comments he made that really stuck is, "I often think how would a really lazy person would best go about being successful in trading". I believe the intended response to that is by capitalising as much as possible from other people's work and through as much automation as possible. 

Just to put another slant on things to some of the posts, because discretionary trading to me is not how a really lazy person would go about being successful. Heck there is more to life than trading in front of a screen.

My thoughts, as I can not be glued in front of a computer all day (and thanks to work firewalls this is not practical either), I would look at 'outsourcing' as much as possible, whether it be a broker or even a system if one does not have the knowledge or time to produce one.

I should comment I do not trade intraday, as it does not fit in with my lifestyle. But if I personally felt compelled to do so, and I don't, I would personally 'outsource' as much of it as possible. But hey, if I could afford to spend all day in front of screen doing nothing else, then that may be a different story.

Another thing I should mention, is that, trading intraday, it may require leverage, and 'compounding' that leverage can be a fearful thing, to take those results to greater heights further than other forms of trading ... I personally find compounding easier to do without leaveraged funds, but hey I am not trying to win competitions.

One site, that struck to mind, in writing this, that may be worth atleast having a look at is,

http://www.attaincapital.com/


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## Temjin (23 October 2007)

tech/a said:


> What I mean is you become systematic.
> Your trading becomes based around R/Ratio's.
> 
> Ive been fortunate enough to have ben educated in this method of trading using a combination of Elliott and VSA.
> ...




I do agree on the part that applying discretionary over systematic trading has an advantage due to the practical experiences you've gained over the years. I can definitely tell it will lead to much better understanding of the market over than just designing a systematic mechanical trading system and follow it blindlessly with less regular inputs. (which results in less experiences) 

But by now, I'm sure you know what I've been trying to develop over the past few months, a fully automatic, pure mechnical intraday trading system. There are obviously inherent disadvantages in trading such a system. However, the major advantage of being able to trade MANY multiple "uncorrelated" markets that cannot be possibly achieved by a human being, in my opinion, outweights the advantages fro the discretionary application. 

The only way I can gain more experience is by continuing refining my experience through developing even more systems and monitoring their performances. 

This is an article posted by Dr Barton not long ago, in one of Van's newsletter. It's an interesting read.

For Part I
http://www.iitm.com/Weekly_update/Weekly_340_Sept_26_2007.htm
For Part II
http://www.iitm.com/Weekly_update/Weekly_341_Oct_03_2007.htm


Part I article is below



> Systematic Trading –
> What Does That Mean for You?
> 
> by D.R. Barton, Jr.
> ...








			
				Nizar said:
			
		

> Then its a good thing I gave myself plenty of time




Same here, I only just started my career, plenty of time.  But need to constantly remain myself to commit to it. Progressing there.



			
				julius said:
			
		

> Hi Nizar,
> 
> I have seen a few couple of very impressive high frequency trading systems but none were able to generate consistent profit once brokerage was factored in. This was FX and a couple of different markets.
> 
> ...




Repeating this again, I have seen at least one very impressive high frequency trading system that was able to generate consistent profit over the last 24 months. If that CTA (Commodity Trader Advisor) continues at this rate, this compounded return will shoot through the roof in a few years time. I'm talking about on average 8.5-9% return per month.  (of course, with lots of variations and respectable maximum drawdowns thus far)


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## nizar (23 October 2007)

Thanks for posting that article Temjin.

Its pretty clear that this author is making the assumption that systematic traders have to take every signal. Certainly isnt the case with mine and a few other systems I know.


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## weird (23 October 2007)

> applying discretionary over systematic trading has an advantage due to the practical experiences




Discretionary sounds sexy doesn't it, sounds like I did my own thing, because I have been so sucessful in my own life, in my own personal decisions that have lead to where I am now, I can just choose and it will work out right ... I'm smarter that the average guy (or perhaps I can prove this in this trade)   ... "I did it my way"  ... but I don't think that discretionary is what was intended in that context within the trading from the above posts, but more systematic, that is, I am following some rules (which I may not be able to completely program in tradestation/metastock/amibroker/etc as a buy or a sell) that have been taught or discovered, within a system that has a positive expectancy.  That is, systematic trading.


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## nizar (23 October 2007)

weird said:


> Discretionary sounds sexy doesn't it, sounds like I did my own thing, because I have been so sucessful in my own life, in my own personal decisions that have lead to where I am now, I can just choose and it will work out right ... I'm smarter that the average guy (or perhaps I can prove this in this trade)   ... "I did it my way"  ... but I don't think that discretionary is what was intended in that context within the trading from the above posts, but more systematic, that is, I am following some rules (which I may not be able to completely program in tradestation/metastock/amibroker/etc as a buy or a sell) that have been *taught or discovered*, within a system that has a positive expectancy.  That is, systematic trading.




Bro i love your work!
(The part in red).

And I do agree with what you are saying. If you have a discretionary system that you've been trading for years (or over any period of time to give you a statistically significant number of trades) and you know it trades with a positive expectancy, then this is no different to backtesting.

Those that have been trading with their own method (even if it hasnt been backtested) for years and years have confidence because they know it had been proven to have returned a profit in the past. They would know from actual trading about max.DD, string of losses, what sort of returns to expect, etc, etc.

As long as you have a set of rules that you stick to and follow in a systematic way, and these rules are the ones that have been successful for you in the past, then you're set. 

Does the above even make sense?  lol probably not.


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## nizar (23 October 2007)

Temjin said:


> As for the leverage using CFDs, think of it that the use of leverage allows you to start trading and fully utilise your money management strategies with LESS CAPITAL.
> 
> Example: You may need $1 million dollar to trade a particular system on stocks alone. That includes all the associated money management strategies that you have backtested and give you the confidence to trade this system. But with leverage, after cost, you found out you could do the same thing for just $100,000 dollars instead.
> 
> *That's how I treat leverage*.




Yeh same with me.

Say, I figured I would need about $200k to get this going with $20k a trade. So 10 positions.
At 10%, Maybe now I could use only $20k since i could control $20k worth of stock with $2k.

Obviously the above is just an example. I haven't even started thinking about the basic mechanics of the system let alone exploring money management strategies.

Thanks for your thoughts.


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## wayneL (24 October 2007)

tech/a said:


> Just googled Acts 9 cant see relevence.
> Care to enlighten me?




Acts 9 details the story of the Damascus Road conversion of Saul. I just thought it quite allegorical.


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## Temjin (24 October 2007)

nizar said:


> Bro i love your work!
> (The part in red).
> 
> And I do agree with what you are saying. If you have a discretionary system that you've been trading for years (or over any period of time to give you a statistically significant number of trades) and you know it trades with a positive expectancy, then this is no different to backtesting.
> ...




That is why I still agree that discretionary trading are more adaptive to the markets, and will always remain superior over non-adaptive, pure mechanical trading on a one-to-one comparsion.

But then I asked myself the question, what are the cost of discretionary trading? What kind of effort i need to reach that kind of level of experiences and skills? What is my limitation, how many markets I can trade at once? How will it affect my family/social life, whatever? 

Discretionary, day-trading through multiple-markets with ultra disciplines may win the day in terms of reward/risk and opportunity. But the psychological and social cost in reaching such a godly status may not be worth it.

That's me anyway, I still want to enjoy life.  That's why I opt for full mechanical trading at the expense of reaching the full potential. Achieve the most with the least effort.


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## motorway (24 October 2007)

Trading is an alchemical process

that turns Lead ( chaos ) into Gold ( Order )

All methods that work will have recognized or not 
true principles that they will adhere too..

I agree that this means 100% systematic

Now if The method is the container the "retort"

Where the process that makes the dollars occurs

Then it comes to the issue of 

a purely mechanical system
That will produce $$$ to some extent

or a system which is still 100% systematic BUT YOU climb into the retort yourself...With You whole being..

esp Your emotions

And not only transform the base lead into gold
But end up transforming yourself as well

( If You are in amongst it it follows that You are forced to grow )

eg The method becomes one of self cultivation...

Hence I think
make all as mechanical as you can
be 100% systematic

But engage and make ( everything) alive...ie 

bring awareness and consciousness to the task


Discretionary is a word that often has no meaning in the context it is often used... It tends to mean bad practice,..

A good system will make money
and allow one to engage with it as much or little as one wants

a good system is one  that captivates by the  the lessons it teaches
as well as the $$$ it makes

So as long as You need to make $$ and grow and learn
engagement is not a problem

there will never be a day come
where everything that is important can be coded into a automaton .
So always 100% systematic applied with 100% flexibility

So as in an old martial art text

 1000 pounds can be controled by 1 ounce

A good system even with You in the middle of it
is efficient and leveraged
eg outputs will always exceed inputs...
$$ in $$ out
Time in Time out


motorway


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## wayneL (24 October 2007)

FWIW from one of my posts on day trading from earlier this year.



> An Interesting blog article from a bloke with a bit of credibility:
> 
> 
> 
> ...


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## nizar (24 October 2007)

Nice article Wayne.

I agree wholly with what he is saying about knowing when a system has failed.

And good daytraders I believe really do clean up. Maybe 99% of daytraders fail but that means all the more $$$ for the 1% who know what they are doing. Its the trade frequency that really amplifies their edge IMO.


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## Temjin (24 October 2007)

> *Let me tell you a little secret: in my years working for hedge funds and prop-trading groups in investment banks, I have seen all kinds of trading strategies. In 100% of the cases, traders who have achieved spectacularly high Sharpe ratio (like 6 or higher), with minimal drawdown, are day-traders.*




Very, very, very true.

This is simply because there are far more opportunities available in day-trading, or trading in the shortest possible timeframe that gives a statistically proven system. 

Anyone who can do pure discretionary, day trading, with multiple markets will take the crown.

But pure mechanical, day trading, with multiple markets, will require less effort to do the "not-as-good" but still extremely lucrative job.


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