Algo Trading Profitablility

amitrandive

Well-Known Member
#1
Dear All

Most Brokers urging Clients to go the Algo Trading way.Many of us starting to feel that Algo is the perfect way to go and it is the future.

Recently came across this article in my weekend reading about Algo trading.

Written by Shrinivas Viswanath, founder, RKSV, www.rksv.in

Worth a read.
https://www.quora.com/How-much-feas...me-set-up-Algo-Trading-as-per-my-requirements
Before I explain how a typical algorithmic setup works, I would caution everyone of the following:

1) Beware of any person/firm that promises returns. No one has a magic formula that can yield consistent returns. If that were the case, ask yourself why they wouldn't pump more money into it themselves instead of getting in the business of selling it to you.

2) There is no algorithm out there that prints money for you without you doing any work. No software/company will ever make money for you. Especially if someone says that the algorithmic trading strategy has been "proven to make money" -- run far far away.

If you're looking for stable returns without much effort, look up investing.

Do your own research and your own backtesting and find something unique that others haven't spotted. If the "strategy" is out in the wild, it's probably not going to work. Finding a trading strategy that works is hard, but not impossible. But it is hard.

Okay, now that's that. There are typically a few options for algorithmic trading that a retail trader can use. Algorithmic trading is a blanket term used for any trading that's based on signals. Signals are usually market events (news, price changes, indicators, etc...) that trigger an action (buy, sell, hedge, etc...).

Algorithmic trading can be as simple as waiting for a stock to hit a particular price and telling the computer to buy it automatically. It's nothing more than just creating a series of conditions and then attaching a trigger at the end of it.

There are a lot of programs that can help you do basic algorithmic trading. You can search the Internet for names or ask an electronic broker for guidance. With most trading software, you can configure it to watch for certain conditions and then trigger an action when the conditions are met. That's called your "algorithm."

Now the next question most people ask is -- okay, but how do I know if I'll make money? Here's where backtesting comes in. Backtesting is just taking your algorithm and running it across several weeks or months of market data. Test run your algorithm over a period of three to four months to see if it's profitable. Check to see how long you need to hold your investments for them to make money. Maybe it's a few hours, or maybe you need to hold them for a few days. Backtesting gives you an idea of the following:

* Is it profitable? Specifically, how much capital do I need to put in and what's my expected return?

* Can it scale? If I put in 2X more money, does the yield (return) also double? Or does it taper off? What about 3X? 4X? ..

* Algorithms are not perfect. Sometimes they lose money. What is the maximum amount of money I could lose at any point in time (called drawdown)?

* Is there a latency risk? If I'm not able to get my trade at the exact price, will it drastically affect my return?

Remember that no algorithm is perfect. You may not make money all the time. You don't have to. You just have to be right 51% of the time to make money.

Background: I've been writing low latency algorithms for over 5 years
 
#2
Dear All

Most Brokers urging Clients to go the Algo Trading way.Many of us starting to feel that Algo is the perfect way to go and it is the future.

Recently came across this article in my weekend reading about Algo trading.

Written by Shrinivas Viswanath, founder, RKSV, www.rksv.in

Worth a read.
https://www.quora.com/How-much-feas...me-set-up-Algo-Trading-as-per-my-requirements
HI amitrandive,

Thanks for the post , I would definitely agree that algo trading is the future of trading in india and the world and you cant hide from it. But I have some questions/complaints about current algo trading environment in India. Currently SEBI dosent have a clear rule regarding algo trading. SEBI treats both HFT(less than second) trading and a long term(more than a month) algo trading system in the same way. I agree that there should be some kind of monitoring in HFT section because most of the market manipulation happens in that duration but why they have to restrict algo trading in higher duration(5minutes to days or months). In this day; algo trading in india is costly for a small retail trader and it only helps institutes,HNIs to make money. The brokers who provide "algo" trading in india ask premium amount for providing those services like IB 2000 dollars, symphony 25000rupees, zerodha api(2000rs/month) plus additional trading charges and also softwares like amibroke(26000 aprox+1000 montly update). I heard that in west algo trading is a norm but in india we have a lot of engineers and IITs but we cant build our on algo trading system because of cost.
 
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Raj232

Well-Known Member
#4
Its a good business opportunity for the first mover who can give a n "all-in-one" package.
The ALL-IN-ONE person also eventually becomes greedy and tries selling it piece-by-piece like addons:
1. Basic software as a bridge to read from Amibroker to Placing orders in Nest .. basic software will be charged... nope not one time.. but every month... hehhee :rofl:
2. Activating Nest Plus API or whatever API on you account .. additional charges.. yep.. every month .. :clap:
3. Data Feed charges.. procure yourself... or.... wait broker can get you some discount :lol: .. the data is continuous.. buy it every month... :clapping:
4. Finally you have a strategy.. so we can help you code it so that it displays the right signals and converts that logic into order placement.. yep.. you guessed it right .. we can help you.. at an additional fee of course.:lol:
5. For each trade.. yes.. you will be charged brokerage ..
6. and last but not the least transaction charges on all trades as usual....

In derivatives.. it is basically a ZERO SUM game.. meaning that for every buyer there is a seller and vice versa. If you add up the amounts... nobody gains and nobody loses.. except when the above charges are deducted both from buyer and seller.. obviously some tax to be paid as well... :D:D

... and the poor retail trader trying to make some money hoping he will strike GOLD some day in the stock market...with almost every second trade being a losing one... !!!

Read again.. think .. ponder.... Let me know your thoughts on the above..

Thanks and Happy Weekend !:thumb:
 

boarders

Well-Known Member
#5
The ALL-IN-ONE person also eventually becomes greedy and tries selling it piece-by-piece like addons:
1. Basic software as a bridge to read from Amibroker to Placing orders in Nest .. basic software will be charged... nope not one time.. but every month... hehhee :rofl:
2. Activating Nest Plus API or whatever API on you account .. additional charges.. yep.. every month .. :clap:
3. Data Feed charges.. procure yourself... or.... wait broker can get you some discount :lol: .. the data is continuous.. buy it every month... :clapping:
4. Finally you have a strategy.. so we can help you code it so that it displays the right signals and converts that logic into order placement.. yep.. you guessed it right .. we can help you.. at an additional fee of course.:lol:
5. For each trade.. yes.. you will be charged brokerage ..
6. and last but not the least transaction charges on all trades as usual....

In derivatives.. it is basically a ZERO SUM game.. meaning that for every buyer there is a seller and vice versa. If you add up the amounts... nobody gains and nobody loses.. except when the above charges are deducted both from buyer and seller.. obviously some tax to be paid as well... :D:D

... and the poor retail trader trying to make some money hoping he will strike GOLD some day in the stock market...with almost every second trade being a losing one... !!!

Read again.. think .. ponder.... Let me know your thoughts on the above..

Thanks and Happy Weekend !:thumb:

spot on....you have hit the nail on the head

atleast let me suggest some consolation if it helps...

use the rtdman of tracerbullet for data.

use the orderman of tracerbullet for semiu auto order placement

use ninja trader and GOMI OFA for strategies
 

rpsvinod

Well-Known Member
#6
spot on....you have hit the nail on the head

atleast let me suggest some consolation if it helps...

use the rtdman of tracerbullet for data.

use the orderman of tracerbullet for semiu auto order placement

use ninja trader and GOMI OFA for strategies
Currently using NinjaTrader and GOMI OFA for my strategies,

trading only on MCX Segments,

Is it worth to try ? Can u explain the Possibilities?

rtdman of tracerbullet for data.

orderman of tracerbullet for semiu auto order placement

RPS. VINOD
 
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amitrandive

Well-Known Member
#7
The ALL-IN-ONE person also eventually becomes greedy and tries selling it piece-by-piece like addons:
1. Basic software as a bridge to read from Amibroker to Placing orders in Nest .. basic software will be charged... nope not one time.. but every month... hehhee :rofl:
2. Activating Nest Plus API or whatever API on you account .. additional charges.. yep.. every month .. :clap:
3. Data Feed charges.. procure yourself... or.... wait broker can get you some discount :lol: .. the data is continuous.. buy it every month... :clapping:
4. Finally you have a strategy.. so we can help you code it so that it displays the right signals and converts that logic into order placement.. yep.. you guessed it right .. we can help you.. at an additional fee of course.:lol:
5. For each trade.. yes.. you will be charged brokerage ..
6. and last but not the least transaction charges on all trades as usual....

In derivatives.. it is basically a ZERO SUM game.. meaning that for every buyer there is a seller and vice versa. If you add up the amounts... nobody gains and nobody loses.. except when the above charges are deducted both from buyer and seller.. obviously some tax to be paid as well... :D:D

... and the poor retail trader trying to make some money hoping he will strike GOLD some day in the stock market...with almost every second trade being a losing one... !!!

Read again.. think .. ponder.... Let me know your thoughts on the above..

Thanks and Happy Weekend !:thumb:
Great analysis, so overall the retail trader stands to loose anyways due to the overhead costs.
 

TracerBullet

Well-Known Member
#8
The ALL-IN-ONE person also eventually becomes greedy and tries selling it piece-by-piece like addons:
1. Basic software as a bridge to read from Amibroker to Placing orders in Nest .. basic software will be charged... nope not one time.. but every month... hehhee :rofl:
2. Activating Nest Plus API or whatever API on you account .. additional charges.. yep.. every month .. :clap:
3. Data Feed charges.. procure yourself... or.... wait broker can get you some discount :lol: .. the data is continuous.. buy it every month... :clapping:
4. Finally you have a strategy.. so we can help you code it so that it displays the right signals and converts that logic into order placement.. yep.. you guessed it right .. we can help you.. at an additional fee of course.:lol:
5. For each trade.. yes.. you will be charged brokerage ..
6. and last but not the least transaction charges on all trades as usual....

In derivatives.. it is basically a ZERO SUM game.. meaning that for every buyer there is a seller and vice versa. If you add up the amounts... nobody gains and nobody loses.. except when the above charges are deducted both from buyer and seller.. obviously some tax to be paid as well... :D:D

... and the poor retail trader trying to make some money hoping he will strike GOLD some day in the stock market...with almost every second trade being a losing one... !!!

Read again.. think .. ponder.... Let me know your thoughts on the above..

Thanks and Happy Weekend !:thumb:
India has high transaction charges yes, but they are not prohibitive, atleast for intraday / swing.

Everything else you list are fixed costs. Once you have an edge and start scaling up, they willl no longer matter. Trading is competitive, if people dont get proper guidance/source material and/or dont make effort, they will loose and then complain about HFTs etc.

Also algo for retail sounds too risky to me. Are you really going to get an edge over an army of math PHDs hired by bigger firms? Maybe a very smart person could find it but i cant. Thankfully we dont have to compete against them.

Currently using NinjaTrader and GOMI OFA for my strategies,

trading only on MCX Segments,

Is it worth to try ? Can u explain the Possibilities?

rtdman of tracerbullet for data.

orderman of tracerbullet for semiu auto order placement

RPS. VINOD
NOTE - These tools are adequate but they are not meant for auto/algo trading. They are both meant to reduce my fixed costs while i am in learning phase and released in hopes that others can use too. But understand its limitations.

1) RTDMan gets data that excel gets from Nest/Now and feeds it to Amibroker. It cannot be more accurate than the terminal. I use it with periodic backfills through another tool to get data matched with Nest/Now Server.

This data has been good enough for me for intraday trading ( i am still learning trader ). But it is not as accurate as say GFDL, it will miss few tick extremes in high volatility/volume periods. It certainly is not tick by tick data. So if an algo needs accurate data, better pay for it. It will also be autobackfilled, so no need for manual backfills.

2) Orderman allows me to trade from charts and to handle a Trade as a group of orders instead of handling each order separatly in Nest/Now. It uses GUI automation and so cannot match a proper api for latency and reliabliity. Please dont use it for algo / auto trading, manual supervision is needed - certainly test it thoroughly first.
I have not used it, but Kite bracket orders seems to have some functionality of orderman and it may suffice for manual trading. For algo trading, you should be already capable of writing these small tools and better get some direct fast api access.
 

Raj232

Well-Known Member
#9
.
.

This will definitely help to reduce fixed costs.


Many traders including myself have been after zerodha to get bracket order into kite which is now working. That is sufficient for manual trading.

However, in manual trading, one is not perfect e.g. There might be a good buy available in MCX crude, but because of sleepiness/drowsyness, one may not buy at the low.. comparatively I'm hoping that orderman will eventually take away that task to an extent. There are many paid Robo trading software which are good enough, but obviously unreliable from a security standpoint.

In fact the Robo software usually has a swing trading concept as well. e.g 1st trade is a BUY with qty = 100, then for swing the sell signal would involve a SELL with qty = 200 ... and all other trades during the day have qty =200 except for the last trade which would be a squareoff qty=100.
 

Raj232

Well-Known Member
#10
Working on some trading strategies through Amibroker which are giving quite good results (5 - 6 % per month) but i'm sure live markets would prove that they need further fine tuning. Have paper traded this on Nifty and BankNifty..

I'm looking only for auto / algo trades rather than manual ones as most of the time the profit is limited and losses are large due to human behavior rather than leaving it to maths.

Recently (1 year ago) opened and account with Zerodha, Unfortunately NEST (Zerodha Trader) and NOW are both blocked on the corporate network in my office. Only Zerodha PI (software based) and Kite (we based) work.
KotakSecurities (KEAT terminal) and Sharekhans TradeTiger work as well.

I'm trying to keep this live testing low cost without any paid pluggins, etc. :)

What would be your suggestion before I test the ALGO's on Amibroker with live data through free automation tools .. Still not sure what should be my first step .. suggestions please..


The ALL-IN-ONE person also eventually becomes greedy and tries selling it piece-by-piece like addons:
1. Basic software as a bridge to read from Amibroker to Placing orders in Nest .. basic software will be charged... nope not one time.. but every month... hehhee :rofl:
2. Activating Nest Plus API or whatever API on you account .. additional charges.. yep.. every month .. :clap:
3. Data Feed charges.. procure yourself... or.... wait broker can get you some discount :lol: .. the data is continuous.. buy it every month... :clapping:
4. Finally you have a strategy.. so we can help you code it so that it displays the right signals and converts that logic into order placement.. yep.. you guessed it right .. we can help you.. at an additional fee of course.:lol:
5. For each trade.. yes.. you will be charged brokerage ..
6. and last but not the least transaction charges on all trades as usual....

In derivatives.. it is basically a ZERO SUM game.. meaning that for every buyer there is a seller and vice versa. If you add up the amounts... nobody gains and nobody loses.. except when the above charges are deducted both from buyer and seller.. obviously some tax to be paid as well... :D:D

... and the poor retail trader trying to make some money hoping he will strike GOLD some day in the stock market...with almost every second trade being a losing one... !!!

Read again.. think .. ponder.... Let me know your thoughts on the above..

Thanks and Happy Weekend !:thumb: