Algorithmic trading experiences

This is a discussion on Algorithmic trading experiences within the First Steps forums, part of the Reception category; Hi, I'm new to these boards and also new to trading. I've found lots of the information posted on the ...

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Old Dec 30, 2008, 2:47pm   #1
 
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Algorithmic trading experiences

Hi,

I'm new to these boards and also new to trading. I've found lots of the information posted on the stickies really useful to compliment what I've read on technical analysis. I'm genuinely pleased to have stumbled upon this place.

Basically I came to the conclusion some time ago that people's behaviour in making trading decisions is the often the root cause of them losing money. So I thought I would build some software that took 'me' out of the equation and code up algorithms based purely on technical analysis. The system is currently working on UK stocks. Over the next 12 months I'm going to trade on paper and refine the algorithms until I find some strategies that are generally consistent. Once I'm confident with it, then I'll put it to work for real. Kind of my pension really.

The current strategies are all based around trends that occur over 2-3 days periods. This is putting me on paper in and out of the market quite frequently. I don't mind this if the 'little and often' culminates in a positive return but I get a sense that more lucrative strategies are longer term and are in the order of months.

Is this why people tend to enter positions with a view to a longer timeframe rather than day trade? I'd be interested in the reasons why people day-trade vs taking longer positions. I don't currently understand why people would choose one over another I suppose.

Also I tried to search for anything on algo trading on these forums and nothing popped up. Is what I'm doing quite marginal or is it just down to the fact that most experienced traders aren't software developers?

cheers

robster

e2a - typo in thread title - good intro from me eh................

Last edited by robster970; Dec 30, 2008 at 3:13pm. Reason: can't spell algorithm correctly!
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Old Dec 30, 2008, 3:23pm   #2
 
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Originally Posted by robster970 View Post

I'd be interested in the reasons why people day-trade vs taking longer positions. I don't currently understand why people would choose one over another I suppose.

Also I tried to search for anything on algo trading on these forums and nothing popped up. Is what I'm doing quite marginal or is it just down to the fact that most experienced traders aren't software developers?

cheers

robster
I can only answer from a personal perspective, and most people here are probably going to disagree with me I'd say the choice of time frame traded is completely down to personal psychology, and that people tend to gravitate towards something they're comfortable with (or they fail).

There might be perfectly good logical reasons for trading longer term, but if it doesn't suit your personality you are going to struggle (even if trading an automated solution).

There's not much stuff on algorithmic trading at T2W (or indeed trading in general ), although its worth taking a look at the technical trading forum, there's a couple of good contributors there developing with tradestation (Charlton immediately springs to mind), probably the best places for information are the forums provided by charting application providers, I got a few ideas from the trade station and wealthlab forums, although its mostly noise to be honest, people faffing about with indicators and stuff

Just out of interest why UK stocks ?
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Old Dec 30, 2008, 3:33pm   #3
 
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Originally Posted by GammaJammer View Post
And also, searching T2W is unlikely to yield much on Algorithmic Trading as it's a little beyond the scope of most people here. Unfortunately it's not a search that yields much of genuine value on the web at large, as anyone with something decent to write about is more likely to keep it secret at the moment. So all info you're likely to get for free is probably going to be pretty vague.

That said, it is the future, and I for one am always happy to get involved in any promising threads on the subject.

GJ
Thanks GammaJammer - I have indeed found that there is pratically nothing out there on the www about algo trading. I concluded early on that people aren't likely to reveal their edge if they have one. I don't think it needs to be really sophisticated either, just consistent. My current strategies are dropping the occassional clanger though (stuff like hitting a stop, selling then in the next analysis cycle re-buying again because it meets the basic entry conditions )

@Zupcon - thanks for the hint - I'll take a look at that this afternoon.

UK stocks? I'm British so picked a market that I'm familiar with and is also suffering from volatility - it's a good test of the algorithms - if they can handle bearish conditions then I would have though bullish would follow - or is this completely naive on my part???
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Old Dec 30, 2008, 3:36pm   #4
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My own two bits to toss in here is to make sure you spend a lot of time developing a real understanding of the risk side of things. A lot of very high profile algo traders (hedge funds, etc.) got themselves blown up because they failed in that category. Not that you're likely to trade in their fashion, but the principle stands.

Aside from that, I'll echo zupcon on the timeframes. Trade what makes sense for you. GJ is right about most retail traders being in short timeframes because of undercapitalization - and a simple lack of understanding that a large point/pip risk doesn't necessarily mean a large account % risk ("I could never risk 350 pips!").
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Old Dec 30, 2008, 3:38pm   #5
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Originally Posted by robster970 View Post
UK stocks? I'm British so picked a market that I'm familiar with and is also suffering from volatility - it's a good test of the algorithms - if they can handle bearish conditions then I would have though bullish would follow - or is this completely naive on my part???
Actually, it might be. Bear markets tend to be more volatile than bull ones, especially in stocks. Whether that means you would expect better bull market performance from your system depends on whether it thrives on volatility (as some do) or whether it works better in calmer markets.
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Old Dec 30, 2008, 3:48pm   #6
 
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Originally Posted by Rhody Trader View Post
My own two bits to toss in here is to make sure you spend a lot of time developing a real understanding of the risk side of things.
Any good stuff to read here John - just to get me going on the subject?

Can you explain a bit more about undercapitalisation? Sorry if this is really basic stuff but I am interested in running two sets of algorithms - one aimed at cycles < 5 days, another set > 3months and hence not understanding undercapitalisation sounds like it might be a problem for me to do this.

BTW - one of algorithms recognises noise and uses weighted acceleration of ROC in conjunction with moving averages - in that sense in calmer bull markets the noise disappears
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Old Dec 30, 2008, 4:17pm   #7
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Any good stuff to read here John - just to get me going on the subject?

Can you explain a bit more about undercapitalisation? Sorry if this is really basic stuff but I am interested in running two sets of algorithms - one aimed at cycles < 5 days, another set > 3months and hence not understanding undercapitalisation sounds like it might be a problem for me to do this.

BTW - one of algorithms recognises noise and uses weighted acceleration of ROC in conjunction with moving averages - in that sense in calmer bull markets the noise disappears
IMO Algo Trading and Automated Technical Trading are not the same thing. I believe the term "Algorithmic Trading" is used by brokers to execute customer orders in an optimal fashion.

Undercapitalization means to me that you have less capital that it is required to cover margin and intraday drawdown at some point and to keep your position risk low enough. There are some very good books on the subject I recommend that you read at least half a dozen before you start risking your hard earned money in the markets.

One that comes to mind is the new book by Michael Harris, "Profitability and Systematic Trading". He has a chapter on risk and money management and he is down to earth and practical.

Rhody Trader's book may have good information in it, I don't own a copy but I plan to order one soon.

Last edited by intradaybill; Dec 30, 2008 at 4:28pm.
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Old Dec 30, 2008, 4:24pm   #8
 
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Originally Posted by intradaybill View Post
IMO Algo Trading and Automated Technical Trading are not the same thing. I believe the term "Algorithmic Trading" is used by brokers to execute customer orders in an optimal fashion.
Definitely fall into the latter camp at the moment. Thanks for the tips btw.
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