What are you guys up to?

[MS+Tradesim]

I have unwound the last of my mechanical trades (long only, ASX equities only) and in the current climate am focusing on fundamental buying and very short-term discretionary. From the new intra-day high for the XAO on 1/11/07 to close on Friday the index has lost around 7% and my mechanical system has closed out equity of around +1.4% for the same period. Not much I know, but still better than the index. Fundamental trades doing very well in terms of growth and discretionary short-term provides some bread and butter. I would expect to turn my mechanical system back on some time next year once a clearer "big picture" is available. With the bulk of US mortgage resets meant to peak early next year (March/April?) I think there is a lot worse to come. But who knows right now.

I'm thinking it might be time to upgrade to Metastock Pro (or FX) and start developing a Forex system. Anyone used Tradesim to model Forex strategies?

 

[tech/a]

I'm upto this.


very short-term discretionary.

 

[seden33]

same

 

[nizar]

I have unwound the last of my mechanical trades (long only, ASX equities only) and in the current climate am focusing on fundamental buying and very short-term discretionary. From the new intra-day high for the XAO on 1/11/07 to close on Friday the index has lost around 7% and my mechanical system has closed out equity of around +1.4% for the same period. Not much I know, but still better than the index. Fundamental trades doing very well in terms of growth and discretionary short-term provides some bread and butter. I would expect to turn my mechanical system back on some time next year once a clearer "big picture" is available. With the bulk of US mortgage resets meant to peak early next year (March/April?) I think there is a lot worse to come. But who knows right now.

I'm thinking it might be time to upgrade to Metastock Pro (or FX) and start developing a Forex system. Anyone used Tradesim to model Forex strategies?

Well I'm trying to design a short-term mechanical system based on CFDs.

 

[theasxgorilla]

Personal circumstances, like moving to the other side of the world, buying a house and needing to put furniture in it, plus needing to find a job, have kept me out of the market. But that's alright, in August I thought I'd picked the top, in September and October (like anyone else not in the market) I thought damn! And now I think, whatever, the markets will always be there.

As you say MS+Tradesim, who knows what the future holds. Depending on how you look at the markets just now, it can look a lot like a transition period from what we had to something different. How's that for nondescript analysis? I think it was tremblinghand trader who observed this as well. And in line with his thoughts I tend to say that in spite of all the gloom media about the myth of decoupling ie. we're all doomed together, there is nothing to suggest that the 'something different' needs to be an aggressive and panicky bear market.

Whilst there are losers in the subprime/CDO saga there were also winners and I'm sure that money will look for a new home in due time.

 

[Temjin]

Intraday pure mechanical trading system, mini forex/futures. Fully automated.

 

[tech/a]

Those short termers

Look at shorting.More tops in this market than bottoms.

 

[nizar]

Intraday pure mechanical trading system, mini forex/futures. Fully automated.

What do you mean by "fully" automated?
Like robobroker or something?

 

[Temjin]

What do you mean by "fully" automated?
Like robobroker or something?

Like coding Amibroker to interface with IB and have everything fully automated by running the program 24 hours a day on a virtual shared or dedicated server, or a private one. This include order entry, exit, modififcation, position sizing strategies, overall portfolio heat and which markets to trade. The only discretionary would be the construction of the trading system, and monitoring performance of course.

Basically, it's intraday trading system but done fully automated. No way I will have the mental energy to watch my computer screen for 24 hours a day, trading 20+ different markets on a 5 mins chart.

This is just my really REALLY long term goal anyway. Right now, I'm developing something of a lesser degree and does not go through IB.

 

[bingk6]

Like coding Amibroker to interface with IB and have everything fully automated by running the program 24 hours a day on a virtual shared or dedicated server, or a private one. This include order entry, exit, modififcation, position sizing strategies, overall portfolio heat and which markets to trade. The only discretionary would be the construction of the trading system, and monitoring performance of course.

Basically, it's intraday trading system but done fully automated. No way I will have the mental energy to watch my computer screen for 24 hours a day, trading 20+ different markets on a 5 mins chart.

This is just my really REALLY long term goal anyway. Right now, I'm developing something of a lesser degree and does not go through IB.

Yes! Yes! Yes! - this is the ultimate challenge!!! Be sure to share it with us when you finish

 

[julius]

I think the cost/benefit of a fully automated intra day system is far too great ; I'd say you're literally looking at thousands of hours of work to create a system that is viable, it would almost certainly require major leverage & is unlikely to remain profitable for any substantial length of time.

The markets that could support this kind of system would need to be both volatile and liquid to make it worthwhile - so you can be sure quants the world over are scouring the same markets for the same inefficiencies. This is why profitable intraday FX systems are extremely uncommon.

On top of this you have the risks of another market anamoly: only need to look at the number of hedge funds trading these systems that went belly up in the sub-prime crisis to realise the risks are huge.

There are many other more productive ways you could spend your time IMO. Thats just me, I could be wrong ! :

 

[marklar]

Mostly research at this point, reviewing old charts, identifying missed opportunities and incorrect decisions (jumped in too high or got out too late). I'm waiting for the 12 month point on some of my longer holds that are in profit and looking for exit points on my ones going sideways.

m.

 

[nizar]

Like coding Amibroker to interface with IB and have everything fully automated by running the program 24 hours a day on a virtual shared or dedicated server, or a private one. This include order entry, exit, modififcation, position sizing strategies, overall portfolio heat and which markets to trade. The only discretionary would be the construction of the trading system, and monitoring performance of course.

Basically, it's intraday trading system but done fully automated. No way I will have the mental energy to watch my computer screen for 24 hours a day, trading 20+ different markets on a 5 mins chart.

This is just my really REALLY long term goal anyway. Right now, I'm developing something of a lesser degree and does not go through IB.

What software are you using to design and test your intraday forex systems?

 

[>Apocalypto<]

I'm up to....

Forex and couple Gold trades here there....

 

[Temjin]

I think the cost/benefit of a fully automated intra day system is far too great ; I'd say you're literally looking at thousands of hours of work to create a system that is viable, it would almost certainly require major leverage & is unlikely to remain profitable for any substantial length of time.

I already spent a thousand on studying alone, why stop now? hehe

The part on major leverage is true, but to me, the more leverage there is, the less capital I need to make the system works. Risk can be managed simply by position sizing.

Unlikely to remain profitable for any substaintial length of time? All systems will eventually meet their death, regardless if you are doing it discretionary or systematically. Beside, I am working to develop a simple and fully adaptive system to make it as robust as possible. Market diversification also helps.

The markets that could support this kind of system would need to be both volatile and liquid to make it worthwhile - so you can be sure quants the world over are scouring the same markets for the same inefficiencies.

It's true on the market characteristics for this system to work. Futures, commondities and major indexs. The quants fund out there operate fairly differently from individual traders and are no different for any other traders who are trying to scour for market inefficiencies.

This is why profitable intraday FX systems are extremely uncommon.

Ohhh, you don't know WHAT'S out there.

There are many other more productive ways you could spend your time IMO. Thats just me, I could be wrong ! :

I like it when you say. It means there is a huge potential in it. Curtis Faith is the kind of person who do things differently from everyone else, and do things where others believe it is impossible or not practical.

I am prepared for the challenge.

What software are you using to design and test your intraday forex systems?

Metatrader initially, will move to Amibroker.

 

[nizar]

Hi Temjin,

I was thinking about the potential of 24/5 trading during the day andvI've decided that this is the direction in which I want to be headed in as I look to the future.

If you are trading big money its probably worth it to pay somebody to look after the system just in case anything goes wrong eg. blackout, internet connection problems, etc. If they need to make an intervention even 1-2 times per month, the money that saves will probably make it worth it for you to employ them. Obviously this depends on the scale of the operation.

They say theres no better sleep than sleeping knowing you're gonna wake up paid

All the best on your journey.

 

[julius]

Temjin,

I don't quite understand what your comment about position sizing?

My point is that the goal of a high frequency mechanical system is low variance (risk), the trade off is expectancy. Low variance affords you high leverage, which in turn over comes low expectancy. It's a zero sum game unless you utilize leverage, which increases your exposure.

One fundamental difference between funds & retail is brokerage - which has a huge impact on this kind of system - not to mention resources, inside information, etc.

Big positions + short holding times requires a market that's liquid + volatile : not THAT many out there and fewer again with enough similarity to be traded by the same system.

I'm interested to hear more about adaptive systems though, I'v read a few journal articles about this but nothing truly adaptive I found was able to make significant profits.

 

[Temjin]

Hi Temjin,

I was thinking about the potential of 24/5 trading during the day andvI've decided that this is the direction in which I want to be headed in as I look to the future.

If you are trading big money its probably worth it to pay somebody to look after the system just in case anything goes wrong eg. blackout, internet connection problems, etc. If they need to make an intervention even 1-2 times per month, the money that saves will probably make it worth it for you to employ them. Obviously this depends on the scale of the operation.

They say theres no better sleep than sleeping knowing you're gonna wake up paid

All the best on your journey.

Hey Nizar. Heh, I thought you originally focusing on long term trading systems.

There are lots of virtual or dedicated private servers out there for hire and it is just as simple to upload the trading program via remote access to the server and have it run 24 hours a day, 7 days a week non-stop. My opinion is that it is far better to outsource such requirement to professional providers who are far better equipped and can provide better securities and 99.99% connection uptime to the internet. It is no different to web hosting essentially.

As for paying someone to look after the system, this would only comes when the operation become big enough. I.e. to the stage of getting registered as a CTA and operate a managed future as a full time basis for other people's money.

Thanks, it's definitely needs hard work but who say wealth is easy to create? (I mean to...*cough* earn from others losses) haha

Temjin,

I don't quite understand what your comment about position sizing?

My point is that the goal of a high frequency mechanical system is low variance (risk), the trade off is expectancy. Low variance affords you high leverage, which in turn over comes low expectancy. It's a zero sum game unless you utilize leverage, which increases your exposure.

This one is rather difficult to explain because all these stuff have always been deep in my head. (there are tons of writers who are far capable of explaining difficult ideas in a simple way)

How about instead of answering your questions, I give you my points for developing a high frequency system.

My understanding of expectancy is that it largely depends on how your system trade (entry and exit) and has absolute no relation to being high frequency or not.

Let's assume I use a basic position sizing strategy of risking no more than 1% of my account per trade. Let's also say I am trading a high frequency and high probability system which yield me an expentancy of 0.4R after cost and give me around 3 opportunities per day on average. (determined historically from valid back testing results)

My expectunity would be 1.2R per day and "in theory", by risking 1% of my account per trade, I would expect to receive a return of 1.2% per day.

How does leverage comes into play then?

As explained in one of the other thread, I insisted that leverage allows me to trade my system by using less capital than otherwise would be needed. I can always limit my total explosure by limiting the number of opened trades.

e.g. 1% risk per trade, I don't open more than 10 trades in any direction at one time, thus, max lost is 10% assuming no spillage in a highly liquid market and no overnight risk. Not to mention no sudden increase in margin requirements, which has been a major risk with the current global credit contraction.

Sorry I cannot explain the leverage side further, I need to get my head around this to explain it more clearly.

One fundamental difference between funds & retail is brokerage - which has a huge impact on this kind of system - not to mention resources, inside information, etc.

Trading costs for currency pairs (only spread, no commission) and futures from discount internet brokers have largely closed the gap of funds' large bargaining power over retailers. But it is true that less spread can give me a huge advantage over time and large quant funds are able to negotiate for better spread.

And I don't see why I have a need for inside information to trade a mechanical system anyway.

Big positions + short holding times requires a market that's liquid + volatile : not THAT many out there and fewer again with enough similarity to be traded by the same system.

That's a worry that I don't mind getting into one day. That's like when I have over a $1 billion to trade or something and I have to start worrying if my trade size will move the market. hahah

I'm interested to hear more about adaptive systems though, I'v read a few journal articles about this but nothing truly adaptive I found was able to make significant profits.

You can try reading Trading Systems and Methods by Perry Kaufman. It has a section on basic adaptive trading techniques.

As long as your back testing results have determined your trading signals are robust, and they are by itself adaptive to changing market conditions, and that significant changes in parameters (if any) do not affect the overall "edge" of the signals, then you could potentially make a very profitable system out of it over the long term.

Remember that any static with parameters trading systems can be robust and profitable over a period of time. However, they will all eventually meet their death as market condition changes. Adaptive trading systems only extend its longetivity and is by no mean immune from system death as well. There is no such thing as a "truly" adaptive system.

Hope this explains everything.

 

[nizar]

Temjin thanks for your thoughts.
I have sent you a PM.

My understanding of expectancy is that it largely depends on how your system trade (entry and exit) and has absolute no relation to being high frequency or not.

Yes true but the annual return of the account depends on expectancy multiplied by trade frequency. So with higher trader frequency, you can compound the account quicker.

What you say below is really good stuff and well said.

As long as your back testing results have determined your trading signals are robust, and they are by itself adaptive to changing market conditions, and that significant changes in parameters (if any) do not affect the overall "edge" of the signals, then you could potentially make a very profitable system out of it over the long term.

Remember that any static with parameters trading systems can be robust and profitable over a period of time. However, they will all eventually meet their death as market condition changes. Adaptive trading systems only extend its longetivity and is by no mean immune from system death as well. There is no such thing as a "truly" adaptive system.

Hope this explains everything.

 

[chops_a_must]

I seem to be awash with potential trades at the moment. The next few weeks are going to be very interesting.