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tommaso
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Posts posted by tommaso
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Massive scalping can also be used as a form of "hedging". To create a "cushion" to protect larger trades.
See for instance this thread:
Forums - Algorithmic Trading a large folio with small orders
or this post on Linkedin:
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Just curious what everyone's opinion is on this subject.I've gotten to the point where I've grown tired of trading individual stocks at a time. I commonly found myself in a situation where'll I find 3-4 stocks thru my scan for the next trading day, have the market direction pegged, and then end up in the 1 stock that decides not to participate. In the last two days I've passed up what would've been an average of +110 ticks or so if I took positions in all of them. Instead I chose the bad apple and stopped out for losses.
BTW, yes I do have a methodology and setup that I trade every single time. However, just because one setup looks like a previous one I had success on, that does not guarantee success. Beyond the impact of market direction, all these stocks have different behaviors, betas, etc.
What's been successful for you guys?
Best way is to trade a large folio of ETFs and use the cointegrations for hedging.
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It's actually quite interesting that most people are aware of money management and the idea of only risking 1-3% of their starting capital, yet they don't try especially hard to incorporate it thoroughly into their trading until they have a bad patch....
QUOTE]
That is absolutely true. There are many concepts which we think we understand well conceptually, but sometimes we really miss to put them in practice.
Diversificating and spreading risk is a real good way to handle risk, even though it may require a little extra patience and method. After all "systematic" money is all about method and discipline.
See an example in this thread where i showed a real $$$ case (maybe even excessive) of risk diversfication within algorithmic trading:
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Thanks Tommaso, looks quite promising. Do you have an extended test results?Personally i am interested in developing my own systems. To me, i then have ownership and i fully trust their potential as i have put the time in, and experienced the tested results and behavior during draw-downs etc.
Perhaps when you have the capital you can trade it yourself or market it. Maybe a big hedge fund will pick it and you can retire to the islands!
Thanks just the same, and good luck.
XS
Hi Xiao,
yes i real trade with it, and so do some of my users/friends (which include large funds too).
I am not so fool as to make public claims about my income, but i let anyone interested to freely try the plaform on their machines for as long as they wish. Diligent traders have to be able to take their own determinations, based on their capital and intelligence :-)
I dont even need to "retire", as i don't consider this work, but pure fun.
You are right, if you are intelligent, you love coding and have a lot of time at your disposal, the best way is certainly to develop your own system. It's a full time commitment though, so it requires real passion and love. ;-))
Tom
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I am still using NT but i am making the switch to MultiCharts now because i am also learning to use Easy Language. My data is eSignal, and i use IB as my broker.NT has really given me, and continues to give allot headaches. Stability and reliability are only the beginning. MultiCharts is really easy compared to NT. The support for NT is very helpful though. They've got that part nailed down.
XS
Hi Xiao. I m also with IB and i have developed a platform which i am also distributing free (a working project). Take a look a it. I think it's pretty stable and reliable and might solve some of your headaches: my IB platform
Then let me know if you found it useful and, especially, if you have suggestions for further improvements for the project. This will allow both discretionary and automated trading.
T
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....typically the tighter the stop one uses on a system then the GREATER the drawdown. Let me repeat, the tighter the stop then the systems will typically experience GREATER drawdown. Of course, there is value in decreasing the maximum risk per trade because with less max risk per trade it is possible to leverage the system higher.My perspective in this article was that a person starts to trade a system that historically had DD of 40% or 50% because they know they will only have to risk x$ because the system uses a stop. However, they are really kidding themselves versus accepting the risk of taking that 40% or 50% loss.
....QUOTE]
That is very true: a lot of people are deceived in thinking that stops limit losses, while instead may just be the opposite (depending on the general organization of the strat).
The only notable effect of stops in automated trading is generally to let your PNL possibly oscillate around 0 for a good amount of time before seeing larger losses ("slot machine effect").
[ Also consider (selling and buying appropriately) options, which may be a great way of hedging and margin bounding. ]
Tom
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One of my systems has historically returned, via hypothetical backtest, around 60%-80% per year (for the past 10 years) when tested with a wide stop loss. The return jumps into the 100%-120% annual range when the system forgoes the stop completely. A 10k account will grow to over 2.5 million dollars in just 8 years with a 100% annual compounded return!-
Curtis
Using the 1 realization of past data will only lead to curve fitting.
"Prediction" makes no sense as far as trading is concerned.
People easily forget their observations are submerged in an ocean of variance...
Tom
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Hi onesmith
thanks for asking.
Since you are interested in a recent value of the "direction", you limit your computations to a recent number of price variations ("moves" from a gridline to another). The (k-1) would represent how many latest distinct price changes you are considering to assess the recent "direction".
When you use equispaced gridlines (and do not use weighting), you can just simplify as follows (which is immediately intuitive to visualize):
Number of "UpMoves" - Number of "DownMoves" sdx = -------------------------------------------------------------------- * 100 Number of all "Moves"intending here "UpMoves", "DownMoves", "Moves" as the distinct price "moves" from a gridline to the adjacent one.
[ The distance between gridlines depends on your "timeframe" (similar to when you measure time, you may be interested in microseconds variations, or you may just be intested in minutes, depending on what you are doing).
(I often use a distance between gridlines equal to 0.1% of the price.) ]
Let me know if something unclear here.
Tom
Tom, I'm trying to translate sdx.[...]
If i represents an index from 1 to 10 what does k represent? ... a 1 point increment in grid? Can you help me visualize k in the code below?
for i=1 to 10 begin s(i)=p(i)-p(i-1); end;
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Thanks for confirming, that is the classical definition. Many people use the regression line slope also.another effective (and more robust) way to determine direction (actually a form of "slope") can be the SDX - signed direction index
Tom
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I will be updating this list regularly, please add your comments.
Do Or Die
congratulations for your magnificent work and posts.
You are a great contributor!
Tom
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Well you know what they say..Try it out and let us know.
Right, that is the attitude! It's is there just to be tried by people and gather and implement as much feedback and constructive criticism as possible. [ Many fund managers are already testing it severely. See for instance:
Forums - Trading FUTURES with IB ]
not claiming anything, clearly. Just hard work and dedication.
But putting together all the suggestions from many traders around the world, something good has hopefully to come out ;-)) Right ?
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I am yearning for a 100 % mechanical trading system that is profitable?. Is this possible?Thx!
Try this
G-Bot Algorithmic Trading - Platform Screenshots
G-BOT Algorithmic Trading - Project and Platform
G-BOT Algorithmic Trading - Project and Platform
(100% auto, also with possibility of manual intervention). A beast!
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When I first came across this ages ago it made me sit up and it did the same when I came across it again recently. Take a look at the chart I have attached. What is it you ask? Oil, gold, S&P 500. Nope, it's nothing. It's a chart which I had excel generate simply by getting it to choose a tick higher, a tick lower or unchanged from the last price. But it looks very familiar doesn't it?Now we all know the markets aren't random
, but really when you look at an example like this it makes you wonder. What are the implications of such an exercise? Here are some thoughts:
- There is an element of perceived randomness to the market at times which may or may not perpetuate further 'random' activity.
- Markets are not random at all as conditions present at any given moment, caused the subsequent price movement. However, when you look at historical charts, they have the appearance of being randomly generated as there is no context when viewing historical prices.
- Unless we assign useful context to market movements, any analysis which is done is never going to be much better than random.
- Would you trade the product in my chart if you knew it were completely random???
What do you guys reckon?
You should first define the notion of Randomness.
One of the most famous probabilist, De Finetti, started his famous book on probability with the sentence: "probability does not exist".
So, go figure.
As we know nothing about future prices, and they are obviously unpredictable, we could say prices are random. Or better, not deterministically predictable. And, actually not even probabilistically. ;-)
T
- There is an element of perceived randomness to the market at times which may or may not perpetuate further 'random' activity.
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TomYou can trade as you like,but you should know that algorthmic trading is based on determining a mathematical exit or stop
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By the way,no algorithmic trader would ever run a monte carlo sim on a coin toss for an actual system.It's a total waste of time.If you're using a strategic overlay as you said and that tells you where to get out,it's a stop.Just because you don't place it on the books it doesn't mean it doesn't exist.By the way also if you have a loss and don't sell,it's still a loss.Your alternative to trading without stops IS to trade without stops
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Right, coin toss is a too simplified and useless model to make reference to.
A more useful model could be the GBM with mean reversion, and then one could just start making some sense, at least with the precaution to test the strat with **different volatility** levels (as mkt as a non-costant volatility obviously):
Algorithmic trading stretches much beyond a naive immagination can reach. There are ways to "overlay" different strategies (for instance a trender against a countertrender) in such a way that one strategy "protects" the other one, and both run without stops. There is also the concept of "artificial option", a conceptual device created using the folio instruments. No need to say that this is much better, and can be proved experimentally, than attempting to use stops at single trade level, which is an absolutely sure way to leave all the money in the mkt, in the long run (i am talking of algorithms). As said, smart traders can still trade with stops and survive a little longer (sometimes more than their lifetime), due to a better choice of high probability "trades" (news processing, past experience, instinct, understanding of international economy, local high/low perception, etc.).
Tom
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...but people are constantly taking results derived from coin-toss examples and using QUOTE]
[that wasn't me actually, but a quote from the powerful mouse ;-) ]
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Guys,All I can say is that trading without stops is almost a sure way of guaranteeing you will be wiped out at some point.I've done alot of research on this topic.In this thread i see the QUOTE]
You have done no research. Trust me.
If so, tell me how can we trade without stops ?
Can you tell me anything alternative to using stops?
How do people who don't use stops, hedge ?
Do you think they open a trade and let it go until ruin ? haha
Trading with no stops has nothing to do with trading without any form of "protection" or risk management. On the contrary, hedging is achieved in a much more advanced way, by "strategy overlay".
Clearly, if we start with the mindset of coin tossing. Make an entry and place a tp and stop, we certainly don't go anywhere.
It is easily proven that any algorithmic strategy based on that is unprofitable.
Smart discretionary traders can survive for a while because a human has a better capability to determine a good entry point (local high/low).
But if we talk about strategies and algorithm, stops have really no place.
We achieve hedging by overlaying strategic layers, and this can be proven effective with rigorous controlled experiments. Forget the coin toss. It's like talking to a 2 yo child.
Clearly, if you tell him, he will not know what you are talking about .... so i will take anything you say. But just remember, it may come useful in a far future ...
Tom
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Volatility is not bound.Not using stops is an incredibly dangerous approach if you are trading.
Stops make the loss unbounded. It's bounded only if taken a stop you quit trading forever.
All scammers and brokers push hard on stop because this way your loss is unbounded.
If one does some serious reasearch (and i mean "serious", not te coin toss) and simulations, it is easily seen that strategies which use stop at trade level are sistematically unprofitable.
If you see seemingly good backtested results, it's just curve fitting.
I have been trading live for years showing and publishing live results of the order of 10% monthly, and all my traders have good returns. I never used stops.
Clearly, it requires capital. But anyway small traders are wiped out in any case. Just matter of time.
Tom
see for instance:
Forums - Robotrading: CT + Trending Strategy on folios of futures
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Hi tommaso, i can't really agree with what you are saying unless you can expand further. Markets, like any other risk based activity, must follow the laws of probability. Flipping a coin and it landing heads or tails is analogous to entering a trade and it going up or down.Discussing probabilities and risk is essential to maintaining a healthy account and that is what I am attempting to do here.
Mkts don't have to follow anything.
Probability models are mere attempts made by humans to understand part of the complexity of nature. And it's certainly not a coin toss model going to help.
If you introduced a GBM with reversion and jump diffusion and not constant variance
maybe the model could come close to a barely acceptable start to investigate some
aspects of money management and strategy performances with proper probabilistic tools.
Discussing the mkts with a coin toss won't lead anywhere, and is an especially biased
and naive approach, as mkt have locally bounded volatility, which is also the reason
why the broker can take sistematically the risk to lend you money.
Tom
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Are you saying that trading without stops is part of your strategy? You never use a stop?Right. Stops are designed to keep the herd around zero. And they work perfectly to that purpose.
Tom
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Using analogies with coin toss for these kind of computation in trading is not much useful, and probably misleading.
There is a fundamental difference. While a coin can do whatever it likes, mkts don't.
Volatility is obviously bounded, as at certain prices you dont have no more buyers or sellers. Further, mkts (especially futures) experience violent reversals. In fact GBM with reversion are pretty realistic models for these (if we let volatility change randomly).
You can have large dd, but can't really have "unbounded losses", unless you use stops, in which case, obviously, you do.
[That is another reason why all fx brokers and scammers recommend to people to use stops .]
Tom
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Here is an interesting article i came across.http://articles.latimes.com/2011/ap...rading-20110403
Think real real real hard if you want to pursue trading. Your dream of making money, your dream of getting rich quick, your dream of driving a Ferrari are all a myth. Movies u watched how traders get rich quick are all a myth.
The reality is, more than 90% of small traders lose!! They just lose!!!
I am looking for the best answers
To successfully trade 2 types of capital are needed:
- risk capital
- intangible capital (intelligence)
This combination is relatively rare. So you have:
:haha: Pr ( risk capital > 500K AND intelligence > chimpanzee iq | trader ) << 10%
T
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I am interested in starting to system trade. I have several years of option market making experience in commodities. I also have many years of hobby programming experience (C, VB, VBA, Java, some C++).I am looking to start with a low cost platform to get my feet wet with systems and backtesting.
Looking for charting also.
So, any suggestions between Amibroker or Ninjatrader? are there others that i should be looking at?
I am concerned mostly with energy futures and commodities, not equities.
Thanks!!
For a free professional platform specialized in futures (especially energy) you can check out this one
[some examples of live trading with it are shown on other forum too. ]
T
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This has been a great thread, and I would like to bring it back to life.It's three-and-a-half years since the last entry here, and in Internet and Trading Technology terms, that is a significant leap back in time.
I live in Australia and straight away that limits what is available locally. In order for me to take advantage of futures data and trading platforms, I would need to sign with an overseas company, and that is not totally kocher for me. Today with sovereign defaults and overnight bankruptcies, I don't need the risk associated with trying to repatriate my trading funds if there is a crisis or a broker collapse. The Aussie government can not help me if an overseas broker decides to ignore my requests to send me my money.
I like the Ensign Windows charting package - currently USD$49.95/month with an initial free trial before committing. I am wanting to access futures instruments with volume data available, and this is not available (reliably) with Retail Forex. I believe Esignal is supposed to have some kind of reflective volume data for spot forex, but nothing as reliable as forex futures data.
Has anyone tried the T4 platform? This does not fit my "deal locally" ideal, but I am searching for an Aussie broker who offers it ... fruitlessly so far.
My alternatives are to find a broker off-shore who meets my needs, and has a degree of security a bit separated from the bucket shops model.
I am sure others have faced this kind of dilemma ... as per the above posts ... but with the passage of time, there are bound to be improvements and economies associated with the better setups.
Thoughts?
have you tried the amazing G-Bot.
:haha: free! this is a no return experience ...
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I am a fairly new trader (2 years) and have worked through all of the psychological barriers that cause you not trade your system properly. Obviously the self work part will never end, but I am to the point where I can trade a system flawlessly without breaking the rules. Problem is I dont think the systems I am trading are that good. Just wondering if anyone had any system suggestions for me.Thanks,
Brent Waynick
ES Emini Trader
Might take a look at G-Bot (free)
Is It Better to Trade a Basket of Stocks or Individual?
in Stocks
Posted
I use the SCX index
See here:
Metrics for Algorithmic Trading by Tom Gastaldi
and also here:
G-Bot Algorithmic Trading Project - Strategies
You need to invest in "essentially different" price moves. Or else you are just "overloading" the same investment (and can easily blow up without even realizing it).