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Algo/Automated Trading Primer

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  #1  
Old 17th September 2016, 11:12 AM
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Default Algo/Automated Trading Primer

I have been a Trader for almost 6 years now and into automated trading since 2 years now. This Thread is started for people who want to know more about algorithmic/automated Trading. Its Pros and Cons Both.

I ll mostly talk about the pitfalls of strategy designing and the best practices followed globally. Other things discussed will be portfolio Construction, Trading Ideas and Coding Help As well.
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  #2  
Old 17th September 2016, 11:29 AM
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Default Re: Algo/Automated Trading Primer

I use Multicharts and Tradestation Trading Platforms.
Easylanguage is the coding language used in both the platforms.

Some Terminology for the "newbs" or someone who is not from this field.

Strategy- Your core logic which you code which includes Money Management
(Stop Loss, Trailing Stop Loss, Profit Target), Entry Rules, Exit Rules etc.

SPR- Strategy Perfomance Report which includes a variety of numbers like Net Profit, Sharpe Ratio, Max Drawdown etc. (More about SPR in detail later )

Equity Curve- The Curve showing how your equity (Capital+Profit(loss)) has grown over time.

Drawdown- The amount of money you have lost from your Equity Peak.
DD=Equity Peak- Current Equity.

Optimization- The process to look for the most perfect numbers which suit your strategy. Its a double Edged Sword. (more about it later )

Instruments- The underlying asset you are trading. ( Equity , Futures, FX, Commodities ) etc.

SSP- Single Strategy Portfolio would mean that you are trading different instruments with a single strategy. E.g. You are trading USD/GBP, USD/INR and EUR/INR using the same strategy.

MSP- Multi Strategy Portfolio would mean either you have multiple instruments and multiple strategies to trade them. Or it can mean multiple Strategies on a single instrument.
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Old 17th September 2016, 11:35 AM
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Default Re: Algo/Automated Trading Primer

Slippage- The different between your actual traded price (filled Price) and the Trade Price in the Strategy.

Cost- The total Cost incurred in taking a trade ( it would include STT, Commisions etc. ) . If you dont have data on your slippage , you would add a rough number to your cost.

In Sample Data- The data used to devise a trading strategy . If the trading strategy is not devised on this data, this data part is still used to tweak the strategy, set exits as well as stop loss etc.

Out Sample Data- This data is quite important. Running the strategy on this data would tell us about the robustness of the strategy. Remember this data set should be unseen.

Usual Practice is to Divide your Data Set into a 70:30 Ratio with 70 being In Sample Data and 30 being Out Sample Data.
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Old 17th September 2016, 11:37 AM
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Default Re: Algo/Automated Trading Primer

Quote:
Originally Posted by Big Short View Post
I use Multicharts and Tradestation Trading Platforms.
Easylanguage is the coding language used in both the platforms.

Some Terminology for the "newbs" or someone who is not from this field.

Strategy- Your core logic which you code which includes Money Management
(Stop Loss, Trailing Stop Loss, Profit Target), Entry Rules, Exit Rules etc.

SPR- Strategy Perfomance Report which includes a variety of numbers like Net Profit, Sharpe Ratio, Max Drawdown etc. (More about SPR in detail later )

Equity Curve- The Curve showing how your equity (Capital+Profit(loss)) has grown over time.

Drawdown- The amount of money you have lost from your Equity Peak.
DD=Equity Peak- Current Equity.

Optimization- The process to look for the most perfect numbers which suit your strategy. Its a double Edged Sword. (more about it later )

Instruments- The underlying asset you are trading. ( Equity , Futures, FX, Commodities ) etc.

SSP- Single Strategy Portfolio would mean that you are trading different instruments with a single strategy. E.g. You are trading USD/GBP, USD/INR and EUR/INR using the same strategy.

MSP- Multi Strategy Portfolio would mean either you have multiple instruments and multiple strategies to trade them. Or it can mean multiple Strategies on a single instrument.
which datafeed ?


which broker?

Is it indian market or outside?
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Old 17th September 2016, 11:44 AM
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Default Re: Algo/Automated Trading Primer

Quote:
Originally Posted by bpr View Post
which datafeed ?


which broker?

Is it indian market or outside?
I trade Equity Futrues in Indian Market. I trade Commodities and Currency in global markets.

We have our own CTCL which links with Multicharts API. For global trades we use brokers like IB and FXCM etc.
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Old 17th September 2016, 11:56 AM
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Default Re: Algo/Automated Trading Primer

One of the reasons i started this thread was to educate people so that they might be able to make a better decisions.
I recently came across web advertisements saying stuff like
6000 points in nifty in 6 months or 80 percent return on capital etc. etc.

Usually they show you nice equity Curves to along with it , Steeply Rising and Steady. Which brings me to one of the major Pitfalls of System Trading.

CURVE FITTING.

Now what is Curve Fitting? Curve fitting is the process of making your equity curve sharper and sharper. Steeply Rising with minimal drawdown.
You may ask now, but isnt it the entire point of designing a strategy? To get a decent equity curve, reduced drawdown etc.

Yes You are right, that is the point. However while designing your strategy ,
you may intentionally or unintentionally head towards Curve Fitting which you should avoid. There are methods to avoid it.

However the point i was making earlier regarding these algo trading advertisements is that you dont know whether the equity curve they are showing is curve fitted ,overfitted or not. The strategy is a black box. you dont know why a buy or a sell is happening . 99 percent of the cases the strategy has been over optimized, curve fitted and would not give the same perfomance if you trade it live.

Its very easy to produce steep equity curve, trust me. I did it unknowingly for a couple of months and then realized about it as i read more, gained more knowledge and when my perfomance was not matching my backtested reports.
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  #7  
Old 17th September 2016, 12:02 PM
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Default Re: Algo/Automated Trading Primer

Quote:
Originally Posted by Big Short View Post

We have our own CTCL which links with Multicharts API.
nice.


I want to know detailed story behind this.

How much time/money spent ..

Are you a individual or group ??

Are you planning to provide this automate solution to public for a fee?

I have a Multicharts.NET license I would be interested to automate in future.
Will your solution work or new one required because Easy Language vs .Net ?
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  #8  
Old 17th September 2016, 12:14 PM
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Default Re: Algo/Automated Trading Primer

Quote:
Originally Posted by bpr View Post
nice.


I want to know detailed story behind this.

How much time/money spent ..

Are you a individual or group ??
My firm is a prop firm so we are not into retail or into sale of our execution platform.I am posting here in my individual capacity. Its purely from a knowledge sharing perspective.

The place where i work spent a considerably large amount of money to set up their operations.
However as an individual if you have the capital to trade, you can get access to decent automated platforms for either a one time cost of roughly
1000-1500 USD (1,00,000 INR) or roughly 150 USD (10,000 INR ) on a per month basis.

I have been doing this for almost 2 years now, its been a crazy journey. The entire field is such a black box and their is so much hue and cry and secrecy around it. Specially Around the whole HFT scene. I must say here that i am not into HFT so i wont be able to answer much about that , however any other questions, queries regarding Algorithmic trading i ll be happy to answer to the best of my knowledge.
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  #9  
Old 17th September 2016, 12:22 PM
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Default Re: Algo/Automated Trading Primer

Quote:
Originally Posted by bpr View Post
Are you planning to provide this automate solution to public for a fee?

I have a Multicharts.NET license I would be interested to automate in future.
Will your solution work or new one required because Easy Language vs .Net ?
Sorry i missed this part of the question. The solution would work with .Net framework also.
The management, i think, is planning to get into sales but as of yet we dont do it.
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  #10  
Old 17th September 2016, 12:26 PM
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Default Re: Algo/Automated Trading Primer

why does not this thread come up in new posts search?
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