Why automation is a must

TickCOM

Member
65 4
This is a classic problem - strategies stop working cause the market behavior change. Since market behavior change at an every year shorter interval, imply strategies need to be adjusted with shorter intervals, or even new strategies need to be developed.

Some compensation can be done by using portfolios of strategies. As mentioned, automation becomes increasingly sophisticated, and its about to make your research on the net for new development platforms.
 

NVP

Legendary member
36,895 1,903
I used to scorn fully automated Forex EAs when I thought I had gained enough trading experience but even more trading experience has brought me to believe they are just about the only way to stay in the game.

The reasons for that is strategy stagnation. Just about every trading strategy (or a combination of strategies) which is profitable in the long run has fairly lengthy stagnation periods of up to half a year. Surely, someone who is not a professional trader working for a big corporate name cannot afford to stay flat for that long.

Therefore, they either quit for good and go back to their day jobs or lose patience, start experimenting, and stop following the strategy which leads to an imminent loss.

With an EA, after making sure it's coded right, you can set it up on a VPS and run it from there while doing your usual daily stuff and not missing on any trades. Needless to say, you also don't feel any stress or emotions which oftentimes leads you to things like reluctance to cut your losses, premature profit taking, or revenge trading.
office politics my friend ..........happens in any large organisation ..............people change things for the sake of it to be noticed......doesn't mean it is for the best ........just change for changes sake mainly

N
 

NVP

Legendary member
36,895 1,903
I can only mainly talk forex experience in recent years but what most traders miss when benchmarking their performance is what was POSSIBLE in the market vs their performance ...

eg a trader shows me that they made on average 30-40 pips a day on the London morning session this week............. (avg say 4hours a day trading)

do I praise them or kick them in the butt ?

depends on the day !!.....and what the market offered vs what they took............

some days that was pretty ok as market was choppy.........other days when the dynamics were in full motion I would have expected 30-40 pips PER PAIR traded for that period of time scalping

so they get a reprimand :)

N
 

NVP

Legendary member
36,895 1,903
With a good selection of different types of strategies and various markets - "something should work all the time".

And it is trivial to trade 50 strategies each in 10 markets. Yes, you have to come up with them, but a decent computer and an infrastructure written for handling many strategies (sadly most are not - ridiculous if you ask me) have no problem running 500 strategies 24/7.


For a human, handling a significant number totally separate strategies is simply not possible.
100% agree here ............so I have a lot of algo support that set me up to then trade manually"..................sorry I havnt got the major money to invest in the algo systems that give 100% assurances on relaiability ....that's the big bank/hedgefund domains.........if anyone 100% trusts their (or someone elses) homegrown EA in this retail sector then you are being very naïve .............they can and will fail eventually ...........and excuses don't pay the rent when they fail

N
 

NVP

Legendary member
36,895 1,903
Martingale will blow your account no matter what.
remember BJ...........its not martingale that will fail you .......its the system the martingale is being used on ;)
 

NetTecture

Well-known member
403 12
Instead of increasing the number of strategies and markets, which is a brute-force approach, one may also investigate more sophisticated strategies that have the potential for higher return/drawdown ratios. This would include strategies based on trading a cointegrated portfolio of assets (stocks, ETFs, etc.), as opposed to trading a single asset within each trading strategy. Cointegrated portfolios of 3 or more assets have better statistical properties for forecasting price changes, and so can be implemented in an automated system using a trading algorithm. Chan describes some of these algorithms in detail in the book I mentioned earlier. You may still want to implement multiple strategies, but if you're drawdowns are lower, you don't need to run hundreds of them just to stay in the green.
More complex strategies are IMHO as idiotic as it gets. It has significant disadvantages:

* It is harder to code and debug complex strategies that follow likely multiple signals.
* It is harder to backtest them properly.
* It is harder to analyzer their behavior.
* It makes it nearly impossible to decouple signal based risk parameters. Not that most people even have a more than baseline risk management anyway (thanks to things such as software being grossly not suitable for managing many strategies with nontrivial risk allocation).

There is an elegance in having strategies doing one signal ONLY and then combining them to instance portfolios outside of the strategy. But then, which commercial software has risk allocation structures that are more complex than a max position size, or even interfaces suitable to actually manage a large number of strategies. Heck, I have yet to even see the commercial product giving me a matrix of weeks vs. strategy results - most do not even have a concept of tracking logical trades, instead relying on some magic signal matching trying to come up with the individual trade pnl.

I generally prefer to keep things simple on the strategy level. Strategies are the least tested (in terms of code quality) part of any trading infrastructure. And given that I and some others use our own software from the ground up - we actually DO have the ability to trade a large number and keep them under control. One of the modules I work on at the moment, for example, deals with complex risk allocation strategies (and redirecting strategy trades to a simulator if risk can not be granted because an exposure is already too high in a particular market).

I definitely prefer that from having "one strategy to rule them all" that is generally worse from a code quality point of view.
 

TickCOM

Member
65 4
Good to start with a sophisticated approach, and then simplify by removing criterion by criterion from the strategy. Then use same strategy on multiple non-correlated currency pairs. If same performance across the pairs is a good sing of a robust strategy.

Time has run from building your own development platform, not sustainable any more with new area of big data, cross market awareness - platforms are becoming too complex.
 

NetTecture

Well-known member
403 12
Time has run from building your own development platform, not sustainable any more with new area of big data, cross market awareness - platforms are becoming too complex.
That is ignorant. Totally. As in: EXACTLY today is the time. Why? Because every single commercial platform out there totally fails to utilize any of the elements you have named. Big data? None of the retail environments even utilize a low end databare properly. Big data - besides the fact that I fail to see where big data enters, and no, some terabyte of data re not big data - none of the commercial software out there uses any big data approach. Platforms becoming too complex? Yes - by focusing on easy of casual use, ignoring modern software development practices and generally being not for automated trading.

Here is an example. NinjaTrader 8. No proper database use to store backtest results, no excel integration for backtest analysis. UI based trading as primary focus - so not able to run headless on a server, no ability to review trades and strategies outside of being logged into the session, instead of using a client/server approach for actual trading. It is a great software that for example I use - for charting and coming up with ideas. Very limited risk control for strategies. No command line interface - which is ok. No way to correlate cash trades with a backtest (to find out how good or bad the backtest assumptions translate into similar executions). No lightweight strategy execution environment. Heck, you can not even group strategies. We run strategies in differnet environments - some vs. simulator, some are being tried in cash (on a separate account with very small size), some run real, with good size - and mixing them up in the UI really does not help getting an idea how the cash trading goes. And no, looking at the broker account may not help either - because there you only see an aggregate of the different strategies, which - if you have multiple strategies trading one instrument - can not always sensibly be deducted back to strategy instances.

Same with backtesting. NT can not handle backtests properly. No database of results. No distributed computing. Want to use 5 machines for optimizations - have fun managing the workload manually. And then somehow exporting results to excel. My own little server room currently uses 20 computers for optimizations and I only log into them once per month to check their system state - work is distributed automatically. If I refactor a strategy, I make a reference backtest, refactor, run another backtest and then compare results - code refactoring should not change them by a single element. How do you do that in NinjaTrader?

So, yes, you are right. it is no the time. If you accept working with software that is obviously not using your computer properly. But if you want something modern, there is NOTHING on the market, at least nothing that is widely advertised. Been there, looked at it, found and still find nothing I want to use.
 

TickCOM

Member
65 4
If you have spend many years building your own development environment, most probably you wont find anything else you would like to use ;)

Anyway, no platform is perfect, the most important is time to market for a strategy - you will always have to adapt to the limitations of a development platform. For example, one are obsessed about using tick data, but using range bars holding also the spread information gives equal reproducible results - its just another kind of strategy you develop, equally performing.

What matters is time to market - this is king. And your time to market has been how long ... decade or two ?
 

NetTecture

Well-known member
403 12
Anyway, no platform is perfect, the most important is time to market for a strategy - you will always have to adapt to the limitations of a development platform. For example, one are obsessed about using tick data, but using range bars holding also the spread information gives equal reproducible results - its just another kind of strategy you develop, equally performing.
And you are aware (or ignorant) of any commercial product using range bars WITH SPREAD during backtesting? Because here your argument falls apart ;)

Btw., I use tick data because of a reason that is very simple: I expose tick data to the strategy and I expect backtest and real trading to be 100% identical from a strategy point of view (i.e. no different code paths because the strategy may rely on tick data but can not do it in backtest).

And yes, bars + spread are good - but then they are not supported by any platform I know of. Which is not exactly making this an argument towards the use of a commercial platform.
 

TickCOM

Member
65 4
Assuming there exist a platform which support the spread on each bar close - to backtest using tick data is only relevant if you exit a trade on a profit level, ie not at a bar close.

The problem to solve is; if you have a profit taking, then you need to call the strategy at each tick ! If you have 20 strategies running on 20 different instruments, mean your platform will be very very busy.

A solution is to add the spread to the bar close, and not use profit taking outside a bar close. But using 1 minutes bars is too risky since lots can happen within a one minute bar. Which mean we need to use range bars, but traditional range bars trigger a train of bars on a move, or price jumps - and they do not provide the important information of sideways trading.

So the solution is the TR bars timeframe - which is a combination of using minute bars, and ranges bars, (combined bars chart) with the adjustment that only one range bar is printed on a move, not to have a train of range bars.

The above imply we need the tick data to make the range bars, but we do not trade/backtest on every tick.

Attached a M1R40 chart, 1 minute combined with 40 tick range bars - which also happens to hold the spread information at each closed bar. Blue candles are range up bars, yellow candles are range down bars. Green and red 1 minute bars.

Using the TR chart, you catch both the fast moves and the sideways moves, provide about 30% more information, and do not spoil the technical indicators on sudden moves.

 
Last edited:

TickCOM

Member
65 4
As to your comment on Big Data, I do not mention such unless it exist. This is a screen shot of big data in a platform - 4/8/16/32/64/128 GB of in memory data, without the use of database or file system. Which is what I ment, development platforms have become too complex for privates to start making their own - in fact at a level that strategies cannot be deployed any more, but are run from within the development environment. I think a platform like Deltix do not deploy any more.

On a 21:9 DELL

 
Last edited:

NVP

Legendary member
36,895 1,903
Good,discussions here guys ....v interesting

Tickcom I've replied to you today.......pm

N
 

counter_violent

Legendary member
9,797 2,517
The automation guys only need to remember one thing. Turn off all bots around major news, and events, like the big boys do, thus ensuring a liquidity vacuum and prices doing varying degrees of spiking and flash crashing. Otherwise, you could be the victim :LOL:
 
Last edited:
  • Like
Reactions: Solas0077

NVP

Legendary member
36,895 1,903
The automation guys only need to remember one thing. Turn off all bots around major news, and events, like the big boys do, thus ensuring a liquidity vacuum and prices doing varying degrees of spiking and flash crashing. Otherwise, you could be the victim :LOL:
Agreed ......and always have a nightwatchmen for,the systems involved......just in case that black swan goes off on its head.....
 

Similar threads


AdBlock Detected

We get it, advertisements are annoying!

But it's thanks to our sponsors that access to Trade2Win remains free for all. By viewing our ads you help us pay our bills, so please support the site and disable your AdBlocker.

I've Disabled AdBlock