Automate a simple system

MrBerka · Oct 11, 2010

Hi

I have traded manually for some time and have a decent track record. Itâs not possible for me to scale up in position size â market impact, risk in worst case scenarios etc.
However, If I automate my trading I have the possibility to increase the number of trades significantly.

How difficult is it to automate order entry/exit? Currently Im using OO Calc (like Excel) and trade on the signals that are generated.
Where should I start to learn more how to automate? Any books to read?

intradaybill · Oct 11, 2010

Quote from MrBerka:

However, If I automate my trading I have the possibility to increase the number of trades significantly.

How? By trading more markets or by getting more signals for the same market? Is this an intraday system or position trading?

Automation is not a trivial task. You have to mechanically account for many things, like dropped connections, noise in the data, proper position sizing, partial order fills, margin calculations plus the programming of your trading system and the interface to the broker platform. If you have no experience, you will definitively need to hire a professional, sign contracts and make sure you do not reveal your edge to him.

CPTrader · Oct 11, 2010

Quote from intradaybill:

If you have no experience, you will definitively need to hire a professional, sign contracts and make sure you do not reveal your edge to him.

As a practical matter, how does one ensure their edge is not revealed???

intradaybill · Oct 11, 2010

Quote from CPTrader:

As a practical matter, how does one ensure their edge is not revealed???

Very easy, you just provide parts of the signal generation algorithm and you ask the programmer (in the contract) to provide a feature for changing this part of the program. Then you set the full algorithm and the correct parameters yourself. Anyone with typing ability and average IQ should be able to do it without being a programmer.

CPTrader · Oct 11, 2010

Quote from intradaybill:

Very easy, you just provide parts of the signal generation algorithm and you ask the programmer (in the contract) to provide a feature for changing this part of the program. Then you set the full algorithm and the correct parameters yourself. Anyone with typing ability and average IQ should be able to do it without being a programmer.

Thank you.

WinstonTJ · Oct 11, 2010

Quote from intradaybill:

Very easy, you just provide parts of the signal generation algorithm and you ask the programmer (in the contract) to provide a feature for changing this part of the program. Then you set the full algorithm and the correct parameters yourself. Anyone with typing ability and average IQ should be able to do it without being a programmer.

Does this ever work? I have found that KISS works best and complicated strategies simply don't work (for me at least).

Any halfway decent trader/programmer could figure out 90% of what I do just from the simple structural outline of the trade. If its just changing variables then that seems like they could easily reverse-engineer your stuff.

This is why I usually stay away from programmers that also trade and/or work for other people.

intradaybill · Oct 11, 2010

Quote from WinstonTJ:

Does this ever work? I have found that KISS works best and complicated strategies simply don't work (for me at least).

Any halfway decent trader/programmer could figure out 90% of what I do just from the simple structural outline of the trade. If its just changing variables then that seems like they could easily reverse-engineer your stuff.

This is why I usually stay away from programmers that also trade and/or work for other people.

I agree with KISS. Most programmers are decent people who try to make a living. Like in every profession there are also some crooks This is why you have to protect yourself.

LeeD · Oct 11, 2010

Quote from intradaybill:

Automation is not a trivial task. You have to mechanically account for many things, like dropped connections, noise in the data, proper position sizing, partial order fills, margin calculations plus the programming of your trading system and the interface to the broker platform. If you have no experience, you will definitively need to hire a professional, sign contracts and make sure you do not reveal your edge to him.

If you trade relatively infrequently (say, you hld a position for over a minute) and always trade at market, automating a simple trading system is very straightforward. If you get a decent autotrading platform it will handle disconnects, position mismatch, partial fills and the like for you. So, instead of "sell 500 shares" you issue command "close long position" and the size is handled by the platform. You can even generaqte signals for opening and closing a position in Excel (literally) and it worls pretty well.

Naturally, if you have an unexpected problem, say, your internet cable gets damaged by construction workers or exchange interrupts a trading session due to high volatility, solutions to such problems cannot be reliably automated. So, it's unwise to autotrade in any significant size in fully unattended mode.

MrBerka · Oct 12, 2010

Thanks for the input. Let me give you an example of what I might be doing.

I do some pair trading.
I have bought the pair at 0,78 (ratio) and wanna get out at 0,82. This is shares that are not very liquid and I dont wanna give up the whole spread so Im using limit orders (I always use limit orders):

Share A 19.52-19.6
Share B 23.74-23.81

My plan is to be on the Offer-side in Share A and on the Bid in Share B, and then close the position when I get filled on any order.

This must be really easy to implement for someone that knows this stuff, but Im a newbie when it comes to this stuff, so any help where to start would be appreciated.

LeeD · Oct 12, 2010

Quote from MrBerka:

Thanks for the input. Let me give you an example of what I might be doing.

I do some pair trading.
I have bought the pair at 0,78 (ratio) and wanna get out at 0,82. This is shares that are not very liquid and I dont wanna give up the whole spread so Im using limit orders (I always use limit orders):

Share A 19.52-19.6
Share B 23.74-23.81

My plan is to be on the Offer-side in Share A and on the Bid in Share B, and then close the position when I get filled on any order.

This must be really easy to implement for someone that knows this stuff, but Im a newbie when it comes to this stuff, so any help where to start would be appreciated.

If you set the entry and exit ratios manually (as opposed to some complex calculation inside the trading strategy) this is very straightforward. The tough part is dealing with situations when you get filled on Share A and price sharply moves aginst you on Share B etc. If you leave execution to automation such events (as well as partial fills) should be sensibly handled.

I understand you will trade in each pair once every few hours (or maybe even days). In this case there are a few trading platform arounds that will let you set all the execution rules in excel if you wish to.