# Mechanical System Design Project - Join hands?



## skl99 (29 January 2008)

Hi, guys.

I’d like to share some of my thoughts. I am a professional software developer not a trader. Last few months I tried to learn how share market works and create a fully automated computerized day trading system. As I have lack of deep knowledge in financial markets probably I’m not too good at generating new ideas but I am good at picking up the existing strategies, encoding and backtesting them. I was able to test some popular strategies (gaps, Bollinger Bands, MACD crossover etc) and even some internet guru blackboxes (http://www.intradaytrades.com). But the outcome is quite disappointing so far. When you test different strategies on number of securities over period of time, the result is . In theory day trading can be automated as it’s not reallyabout zero  affected by current market trend. But reality is that different strategies give you approximately same results in bearish 2001, 2002, 2007 and bullish 2005, 2006. So at the moment I decided to stop with testing and get more knowledge about the subject. But soon I understand that it can take few fulltime years to become an educated trader. Not sure I can afford it (family, mortgage etc ) Next idea was to join hands with a professional trader. I believe that two (or more) professionals can work out something valuable.

My contribution can be:
• 10 years commercial software development experience
• General understanding of how shares work and the ability to pick up and encode ideas for careful testing, examination and optimization.
• Fully automated contemporary framework with the ability to collect real-time and historical data, make decisions based on your instructions (high level programming language) and execute orders with popular brokers (US based indeed: IB, MBT etc). The framework already has most of popular indicators and functionality to backtest and optimized your strategies.
• Historical data (trades, 1 and 5 min bars) for number of instruments.
• Help with installation and set up of the framework at your side.

My target is to create one or few strategies which can be run fully on their own and give your stable low income (5-10% a year from your cash, or more using 2x or 4x margin)

I am not interested in extra money for the ATS development (I am pretty happy with my current position and salary ) but I’m definitely interested in market education and finding a professional trader to learn from.
Please don’t blame me as a novice who wants your system for nothing  . I don’t ask for your “Holy Grail” trading system. As far as I know many traders have less profitable system they don’t use in everyday practice. My idea is to get some extra steady income using one of these.

Please keep in mind that some strategies (like pattern trading) heavily depend on person’s skills and experience and are extremely hard to be automated.


Regards


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## gazelle (9 February 2008)

*Re: Join hands?*

Good post SK .  You are looking to apply and integrate your electronic knowledge towards constructing and designing an automated trading system 
based upon certain technical criteria that you are looking at or have selected to plug into your model . I am not really experienced in this area however my trading system is partly automated in application and execution although there is a large discretionary componet as well and these two variables can and do change over time depending on the condition or phase of the market under analysis . Pure automation is a fragmented approach as you are distorting and altering the true path of the market to fit within your artificial model . Markets are rotational systems with inner and outer boundaries that expand and contract dependent upon the frequency of vibration or cycle that is running out at any given point in time . Automated systems capture a snapshot of the terrain , in essence they only decode a small section of the market . Every instrument is unique , it holds its own tone and has a unique repetitive frequency , to a degree this is similar to financial mkts so getting back to the topic how can we we design an automated trading system that has similar design charactetistics in line with our mkt of choice , well it is hard , I know very little about purely automated systems as I trade Gann so its a bit different . Certain markets move geometrically with price and time componets moving into alignment , these dimensions are always changing and seeking their centre of gravity . these ideas may seem abstract and they probably are but thats the way I look at markets , Its almost impossible to pull the veil and to tap into the cystal structure of the market but I think purely automated systems only see one side of operation . 


 Automation takes


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## RichKid (9 February 2008)

*Re: Mechanical System Design Project- Join hands?*



skl99 said:


> Hi, guys..........
> .........
> ........
> 
> ...




Hi skl99

Welcome to Aussie Stock Forums!

That's a commendable idea and one that has generated a number of threads on ASF (in some form or another).  You are bound to find invaluable material in those existing threads if you use the search tool and type in key words and phrases related to your interest (eg mechanical system, drawdown, consecutive losers, scalping etc). This will provide some grounding in the basics of this field. Feel welcome to post any questions in those threads and feel free to develop this thread as your idea for the system matures. You are unlikely to give much away by discussing the specifics of basic concepts and strategies on the forum threads. It is probably advisable to spend a few weeks or months on ASF to study and reflect on the various concepts presented here- gazelle, for example, makes some observations above which you may not have considered but which are often debated between mechanical and discretionary traders.

We encourage open discussion and exchange of information on ASF and even have threads on local trading groups for those interested in face to face meetings. So read, post away and feel free to continue this as an open discussion.

Good Luck!


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## julius (9 February 2008)

*Re: Mechanical System Design Project- Join hands?*

skl99,

Questions:

- Which broker's API do you have experience with ?

- Which programming language are most familiar with ?

- Which charting platforms are you most familiar with ?

Cheers.


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## skl99 (12 February 2008)

To RichKid

Thanks a lot for encouraging me  Indeed that's what I do now. Forums give you more knowledge than books or seminars.

Regards


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## Trembling Hand (13 February 2008)

skl99 said:


> My target is to create one or few strategies which can be run fully on their own and give your stable low income (5-10% a year from your cash, or more using 2x or 4x margin)




You lost me here. Just put your money in a high interest rate account and don't worry about the market.


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## prawn_86 (13 February 2008)

Trembling Hand said:


> You lost me here. Just put your money in a high interest rate account and don't worry about the market.




Have to agree here.

If your not earning over 10%pa in the market then there is no real point being in it. 

Anyone can get &% in a bank account,  so to me that extra 3% makes up for the risk. Obviously the higher the return the better though. And some would argue that you should be beating the index, otherwise it is better of in an index fund, however im focusing on slow steps...


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## albi000 (13 February 2008)

Fully mechanical system described today on CompareShares.

"From 1929 to 2003, the Dogs of the Dow strategy outperformed the stockmarket (the S&P 500 index) handily, returning about 14 per cent a year compared to the market return of 11.7 per cent a year during that time. "

Maybe "Dogs (Dingoes) of the ASX " is what you are after?


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## Trembling Hand (13 February 2008)

In fact the system will only have to break even to get a 6.5% return. As the project would be a day trading system it will earn 6.5% interest on overnight account balances.

A often overlook advantage of day trading.


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## skl99 (14 February 2008)

Hi

Thanks for all answers.
I am surprised a bit with the questions.



> 5-10% a year from your cash, or more using 2x or 4x margin




Key word here is "your cash". Using standard 4x day trading margin ROI will be 20-40%. Next it's easy to invest or borrow some extra money to increase the cash flow.
Can you do the same with bank account? 

Regards


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## skl99 (14 February 2008)

To albi000

Thanks for the link, I will study it.

Regards
Kirill


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## nizar (14 February 2008)

skl99 said:


> My target is to create one or few strategies which can be run fully on their own and give your stable low income (5-10% a year from your cash, or more using 2x or 4x margin)




I wouldnt bother with systems testing and design If i was aiming for 5-10% unleveraged.

That would be an underperformance of the market, many fund managers can already give me that!!

If you want to trade the stockmarket with the aim of making 5-10% a tear unleveraged, in my opinion, You are taking on too much risk for the return you are seeking.


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## Trembling Hand (14 February 2008)

albi000 said:


> Fully mechanical system described today on CompareShares.
> 
> "From 1929 to 2003, the Dogs of the Dow strategy outperformed the stockmarket (the S&P 500 index) handily, returning about 14 per cent a year compared to the market return of 11.7 per cent a year during that time. "
> 
> Maybe "Dogs (Dingoes) of the ASX " is what you are after?




That's not a day trading system!


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## tech/a (14 February 2008)

Been watching this thread for the last couple of weeks.

Seems to be dying a natutral death like all other systems design threads.

Hopefully some constructive suggestions below.

(1) You dont need to invent systems testing software or Programmes.
The best you'll get is already there. Amibroker and Tradesim Combination will do eveything you want.Your programming skills may well place you well ahead of average users like myself.BUT the full package will set you back a couple of K.

(2) http://www.quantitativetradingsystems.com/
Howard Bandy has a complete guide to systems construction in the form of his excellent book. Both Nizar and I have one and I'm sure a few others have as well.

(3) The Triggers are of course infinite for 
Entry
Exit
Initial stops
Trailing stops
Position sizing
Targets etc.

The above will get you way further down the track than relying on Forum posts.


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## skl99 (14 February 2008)

To albi000

"ASX dogs" is a longterm investment strategy and works good only on bullish market.


> by the end of 2007, the strategy was really in the doghouse: our portfolio lost 6.7 per cent, compared to the S&P/ASX 50’s rise of 11.7 per cent.




I am after intraday or swing strategy.

Regards
Kirill


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## skl99 (14 February 2008)

nizar said:


> I wouldnt bother with systems testing and design If i was aiming for 5-10% unleveraged.
> 
> That would be an underperformance of the market, many fund managers can already give me that!!
> 
> If you want to trade the stockmarket with the aim of making 5-10% a tear unleveraged, in my opinion, You are taking on too much risk for the return you are seeking.




Well, managed funds work well only with bullish trend. I don't know AU funds which really work (trade) at the market. They just update their portfolio once a quarter and get 2% from you accurately.
At the moment I am minus 8k with my top range managed fund.

Regards


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## skl99 (14 February 2008)

tech/a said:


> Been watching this thread for the last couple of weeks.
> 
> Seems to be dying a natutral death like all other systems design threads.
> 
> Hopefully some constructive suggestions below....




Thanks for watching and for the answer.

I posted same tread at couple of others trading forums and already have few people I cooperate with.

Main idea: they want to save time and get some extra steady income.

If you feel confident enough to automate your strategy yourself, that's great!

Regards


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## Temjin (14 February 2008)

skl99, check out some of the managed futures funds out there to get a feel the kind of performance the professionals are getting in the real world. 

www.iasg.com for a starter, there are quite a few of these managed future brokers around on the internet. 

Tech/A's advises should also get you started pretty quickly.

I wish I had your level of technical expertises in programming. Me and Nizar are involved in designing intraday automated trading systems as well and understand the fundamentals pretty well. But both of us lack the programming skills and still have a long learning curve to go. 

Maybe we CAN trade some knowledge around.  Good luck.


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## skl99 (14 February 2008)

Temjin, thanks for the answer and link.

Probably we can do something together.

Regards


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## julius (14 February 2008)

I see a few things I don't agree with:

The objective is an INTRAday system - hence you need liquidity and volatility...realistically stocks are out of the question, so you're looking at some form of leveraged instrument (forex,futures,etc)

anyone who is familiar with day trading will tell you %return is irrelevent: the real game is not wiping yourself out, ie. low variance (risk)

leverage on futures is ~20:1, ~50:1 on forex . . .  20 x 5% = ?

intraday systems vs. medium/long term = chalk & cheese imo

5-10% is very reasonable


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## tech/a (14 February 2008)

Julius.

While I agree that Preservation of capital is very important Return on Risk is in my view the key to consistent profits.

Stocks can be traded short term even intraday and if using CFD's and leveraged correctly can be profitable.

As an example.

Lets take a stock trading at $20 and risk is 30c
You have a CFD account with $20k in it.Your total Trading capital is $100,000
Your analysis tells you you should get a 90c move.
R/R is 3:1
Say 2% risk or $2000.
Thats 6600 shares (CFD's) at $20
The risk remains the same under heavy leverage.

So can be done OK.


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## julius (14 February 2008)

question Tech (I don't trade CFD's):

is there sufficient liquidity/market depth to allow for a position of that size to be entered / exited intraday?


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## tech/a (14 February 2008)

CFD's are a derivative not the Physical so YES or more to the point I havent had a problem.

Like you I'm still bemused myself as to where the Profit from a trade comes from.
But I'll ask and let you and I know-----


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## Trembling Hand (14 February 2008)

Wondering out loud about the suitability of intraday systems trading on Stocks rather than a Index Futures or Forex.

With Futures & FX you can pick a couple of instruments and find reoccouring patterns for that market.

With stocks you have many different ones all doing different thing @ different times with different spreads and liquidity. You have the problem of finding one that moves all the time and then in patterns that you can trade??


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## Temjin (14 February 2008)

Trembling Hand said:


> Wondering out loud about the suitability of intraday systems trading on Stocks rather than a Index Futures or Forex.
> 
> With Futures & FX you can pick a couple of instruments and find reoccouring patterns for that market.
> 
> With stocks you have many different ones all doing different thing @ different times with different spreads and liquidity. You have the problem of finding one that moves all the time and then in patterns that you can trade??




That boils down to whether your intraday trading system is robust and flexible enough to trade "different" kind of markets. (i.e. different shares as opposed to just a couple of future commodities and forex pairs) 

I believe the key is to keep your system AS SIMPLE AS POSSIBLE so its core fundamentals apply to different markets. 

There is an advantage of trading in stocks because of the massive number of markets (i.e. shares) out there, thus, generating more trade frequencies. For forex, you are sometime very limited to a few pairs because certain pairs tend to correlate with each other very well. (even in intraday movements)


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## nizar (14 February 2008)

skl99 said:


> Hi, guys.
> 
> I’d like to share some of my thoughts. I am a professional software developer not a trader. Last few months I tried to learn how share market works and create a fully automated computerized day trading system. As I have lack of deep knowledge in financial markets probably I’m not too good at generating new ideas but I am good at picking up the existing strategies, encoding and backtesting them. I was able to test some popular strategies (gaps, Bollinger Bands, MACD crossover etc) and even some internet guru blackboxes (http://www.intradaytrades.com). But the outcome is quite disappointing so far. When you test different strategies on number of securities over period of time, the result is . In theory day trading can be automated as it’s not reallyabout zero  affected by current market trend. But reality is that different strategies give you approximately same results in bearish 2001, 2002, 2007 and bullish 2005, 2006. So at the moment I decided to stop with testing and get more knowledge about the subject. But soon I understand that it can take few fulltime years to become an educated trader. Not sure I can afford it (family, mortgage etc ) Next idea was to join hands with a professional trader. I believe that two (or more) professionals can work out something valuable.
> 
> ...




Sounds very interesting. I have sent you a PM.

As Temjin has said, I am currently in the process of designing something similar to what you are doing here, an intraday system, but it will trade forex.

Is there any reason why you have singled out the stockmarket as opposed to forex or futures?

The best IMO is to have a system that trade stocks and another that trades forex given the historically low correlation between the two markets.

Are you familiar with NeoTicker software?

Automation through MBT is exactly what i was going to be doing.


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## julius (14 February 2008)

Temjin said:


> That boils down to whether your intraday trading system is robust and flexible enough to trade "different" kind of markets. (i.e. different shares as opposed to just a couple of future commodities and forex pairs)
> 
> I believe the key is to keep your system AS SIMPLE AS POSSIBLE so its core fundamentals apply to different markets.
> 
> There is an advantage of trading in stocks because of the massive number of markets (i.e. shares) out there, thus, generating more trade frequencies. For forex, you are sometime very limited to a few pairs because certain pairs tend to correlate with each other very well. (even in intraday movements)




er ... forex pairs correlated ? what about correlation between stocks ? 

systematic risk ring any bells ?


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## julius (14 February 2008)

Nizar,

Could you please expand on Neoticker RE: auto trading ?


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## nizar (14 February 2008)

julius said:


> Nizar,
> 
> Could you please expand on Neoticker RE: auto trading ?




NeoTicker according to my understanding is what most professionals use as a systems design tool for automated trading.

The other option is OpenQuant, but this is more targeted towards programmers while NeoTicker for traders.

NeoTicker uses I think C++ programming language and can interface with EFX group for execution. 

http://www.tickquest.com/NeoTicker/automatedtrading.html

NeoTicker also have a forum which I have found quite helpful.


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## julius (14 February 2008)

Did you realise Amibroker also has AT capability?


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## nizar (14 February 2008)

julius said:


> Did you realise Amibroker also has AT capability?




Yes but Ami doesnt even have monte carlo analysis does it?
Because of this, I dont really see it as a serious software.

I know many will disagree because it can do hundreds of functions or whatever, but for me its missing the critical one.


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## Trembling Hand (14 February 2008)

What about the size of the move to cover the brokerage with stocks. 

Futures less than a tick.


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## Sir Burr (14 February 2008)

nizar said:


> Yes but Ami doesnt even have monte carlo analysis does it?
> Because of this, I dont really see it as a serious software.
> 
> I know many will disagree because it can do hundreds of functions or whatever, but for me its missing the critical one.




How about Tradesim, is that serious? Tradesim needs the trades and Amibroker provides them plus "hundreds of functions or whatever" included.


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## nizar (14 February 2008)

Sir Burr said:


> How about Tradesim, is that serious? Tradesim needs the trades and Amibroker provides them plus "hundreds of functions or whatever" included.




Yeh well each to his own.

I think TradeSim is great because it does what i want it to do.

Everyone has their own requirements and they should find a product that suits them. Ami doesn't meet my requirements. Simple as that.


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## howardbandy (15 February 2008)

nizar said:


> Yes but Ami doesnt even have monte carlo analysis does it?
> Because of this, I dont really see it as a serious software.
> 
> I know many will disagree because it can do hundreds of functions or whatever, but for me its missing the critical one.




Hi Nizar --

It might be helpful to explain how you use Monte Carlo analysis, and what makes it "the critical function" for you.  

The latest release of AmiBroker has built-in walk forward testing, which I think is extremely important -- more so, for me, than Monte Carlo analysis.  It is in Version 5.05.1.  Even those of you who do not have an AmiBroker license can download it and try it out.  
http://www.amibroker.com/ 

I know that Monte Carlo features are high on the developer's "todo" list.  But Monte Carlo is a very broad term, meaning different things to different people.

Thanks,
Howard


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## Sir Burr (15 February 2008)

nizar said:


> Everyone has their own requirements and they should find a product that suits them. Ami doesn't meet my requirements. Simple as that.




I agree 100% Tradesim is fantastic, I use it.

My simple point was that you need a trade list for Tradesim to function. You can probably use many charting packages to export a trade list to Tradesim but you can have your cake and eat it with the Tradesim _plus_ Amibroker combo. 

If you are not keen on paying the big bucks for Tradesim, how about free:

http://www.tickquest.com/product/equitymonaco.html


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## tech/a (15 February 2008)

Personally I think the Amibroker/Tradesim Combo to be one of the best.
After reading Howards excellent publication and being an M/Stock/Tradesim user since Tradesims inception,its my feeling that Amibroker is far more dexterous than Metastock.

I think Howard has made a very strong point here in that its more about *how the tools are applied than the tools themselves.*


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## tech/a (15 February 2008)

Julius.

Recieved this response from Thomas N40K on another forum re my question on CFD's.Thomas was Risk Manager for the Currencies desk at ABN Amro Tokyo for a few years.



> John,
> 
> Your profit will come from your opposite party. In the case of non-exchange traded CFDs, your opposite is simply the provider. Yes, they lose money if you make money, and vice versa.
> 
> ...


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## julius (15 February 2008)

nizar said:


> Because of this, I dont really see it as a serious software.




Well that's a big call nizar...

Amibroker doesn't do 'hundreds' of functions, it does practically any function, provided you are willing to code it. You can achieve virtually any kind of data manipulation you like via exporting exploration results into excel, shazam, etc

Remember automation comes at the expense of flexibility. Many 'serious' system developers prefer the latter.


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## julius (15 February 2008)

Tech,

Thanks for that. I understand their role as a hedging instrument, but I am still skeptical as to whether they are appropriate for intraday mechanical trading. 

Not that it couldn't be done, but I think there are better alternatives...

Practically, are there any CFD brokers which would provide an API to facilitate this kind of system?


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## Sir Burr (15 February 2008)

julius said:


> Well that's a big call nizar...




Yes, I had a smile when Tomasz wrote today on Amibroker group:

_"Spending so many $$$ on Tradesim only to run Monte Carlo is not wise thing, when you can have the same for free"_


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## tech/a (15 February 2008)

A fair comment.

But some of us had the Horse before the cart.


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## gooni (15 February 2008)

nizar said:


> NeoTicker according to my understanding is what most professionals use as a systems design tool for automated trading.
> 
> The other option is OpenQuant, but this is more targeted towards programmers while NeoTicker for traders.
> 
> ...



I am an avid user of NeoTicker, although probably wouldn't recommend someone program using C++ in it!

You'll find that most strategies can be Proof-of-Concept'ed in DelphiScript or VBScript (or their builtin formula language if it's very simple). Then for deployment into a production ATS, converted into compiled Delphi (or perhaps #.NET for those inclined that way). The flexibility is there, as the NeoTicker API is available for a few languages.

The really great thing about NeoTicker (or one of - yes, I'm a big fan) is that the Trade object is broker independent. And the platform is feed independent. Heck, you could write your own broker or feed interface if that's what you wanted - of course, the major ones are already provided.

For a systems developer, this means that these types of deployment decisions are left until the end, after a strategy has been tested. In technical terms, the system is object oriented and decoupled. Fantastic from a design point of view.

Of course, that's not all. Most useful for me is the real ability to perform intra-day style testing at the tick level, simulating realistic fills. This is the equivalent of real-time forward testing on historical data - assuming that you have tick data for the instrument you want to work with.

And finally I'll touch on the ability to create custom market breadth indicators (such as the NYSE TICK), based on your own criteria, basket of stacks, interval etc. I know of people using this to create US style breadth indicators for the ASX market. Certainly something the average aussie trader doesn't do.

I still consider myself a NeoTicker beginner, because I don't use over half of the options on the product. Maybe one day my skill will be at such a level that those tools make sense. But right now, it's definitely overkill. I do however feel that as a systems developer, and especially for day trading systems, one needs to have the right tools to not kid themselves into a false sense of confidence in their system.

NeoTicker provides that, and I can't recommend it highly enough. For many reasons, not least of which is that I hope for more local users I can share ideas with!


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## Sir Burr (15 February 2008)

tech/a said:


> A fair comment.
> 
> But some of us had the Horse before the cart.




Yeah, including myself!

But it does have very pretty charts


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## nizar (15 February 2008)

gooni said:


> I am an avid user of NeoTicker, although probably wouldn't recommend someone program using C++ in it!
> 
> You'll find that most strategies can be Proof-of-Concept'ed in DelphiScript or VBScript (or their builtin formula language if it's very simple). Then for deployment into a production ATS, converted into compiled Delphi (or perhaps #.NET for those inclined that way). The flexibility is there, as the NeoTicker API is available for a few languages.
> 
> ...




Thanks for the feedback.


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## symmetry (23 February 2010)

mmh i am very interested to chat to you.  Inmy designs i make sure the strategies i use work on forex, futures and stocks, this way all my algorithms are mathmetically orginal and will trade any market in all time frames (D, W, M)  and intrady obviously certain time frames 

anyway i am looking for someone exp in neoticker / programming in delphi, c++ or C# due to the maths invlolved prefer delphi  as neoticker works well in this.

bascially neoticker seems to offer the best platform bar one , but at the moment theother one is too expensive and needs a overhaul  to fix some proccesing problems.

i am definitely interested to chat and take it form there. i can offer alot of knowlwedge and trading expertise - 

thanks


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