Developing a Trading System Step by Step
- Thread starter Murray Ruggiero
- Start date
Traded my first contract in 1989. I've been trading more or less consistently since then. (That's trading consistently, not profitably trading consistently.)
About 50% of my accounts are pure systems. About 50% are discretionary spread trading with an occasional outright view. What "made" my accounts were the big trends on 94/95-Corn, 97-currencies and coffee. Which markets I trade is a little difficult to answer. I would say that my systems are "willing" to take positions in 61 different markets, about 1/3 of them foreign markets. However, the systems I have built have very strict levels of risk that they are willing to accept so at any given time I am limited in the number of markets that meet the criteria. Certain kinds of positions have much better risk/reward characteristics than others, so I try to limit the trades to only the best opportunities. I would prefer to have the systems fully executed by an assist broker. If I ever find one who can do it correctly, I will let you know. I have a log of the money that broker system execution foul-ups have cost me over the years. The total is now close to six figures and shows no signs of slowing its rise.
I think by most people's standards, I have done well at this. But I don't know everything by ANY means. And I still enjoy learning new things about how markets behave and smarter ways of doing this. I have a lot left to learn.
About 50% of my accounts are pure systems. About 50% are discretionary spread trading with an occasional outright view. What "made" my accounts were the big trends on 94/95-Corn, 97-currencies and coffee. Which markets I trade is a little difficult to answer. I would say that my systems are "willing" to take positions in 61 different markets, about 1/3 of them foreign markets. However, the systems I have built have very strict levels of risk that they are willing to accept so at any given time I am limited in the number of markets that meet the criteria. Certain kinds of positions have much better risk/reward characteristics than others, so I try to limit the trades to only the best opportunities. I would prefer to have the systems fully executed by an assist broker. If I ever find one who can do it correctly, I will let you know. I have a log of the money that broker system execution foul-ups have cost me over the years. The total is now close to six figures and shows no signs of slowing its rise.
I think by most people's standards, I have done well at this. But I don't know everything by ANY means. And I still enjoy learning new things about how markets behave and smarter ways of doing this. I have a lot left to learn.
Hi Xephen, do you mind to tell me which data source do you use to do backtesting?
My daily data source: CSI
My tick data source: CQG
would love to hear which provider do you use.
and how do you handle the exchange rate?
Imagine you trade the Bund, throughout the years, the base currency has changed once, in addition, the exchange rate is different daily. However, during the backtesting period, the base currency is USD. Is there an easy way to directly get around it from the data provider?
Can you implement it in TradersStudio?
(Tick Value / Tick Size) * Exchange rate
My daily data source: CSI
My tick data source: CQG
would love to hear which provider do you use.
and how do you handle the exchange rate?
Imagine you trade the Bund, throughout the years, the base currency has changed once, in addition, the exchange rate is different daily. However, during the backtesting period, the base currency is USD. Is there an easy way to directly get around it from the data provider?
Can you implement it in TradersStudio?
(Tick Value / Tick Size) * Exchange rate
dandxg, the long term nature of the systems I use reduces "news" to "static." If you are trading very short term and using stops, I guess this kind of news may be something you need to worry about. But consider this: I develop my systems over data that goes back to 1980. This is an arbitrary place to start ... I could certainly go back further. But in the dataset I am working with, consider all the "wacky" news and "wacky" market moves that have taken place. Stock market crashes, terrorist bombings, embargoes, LTCM, Barings, MG, droughts, surpluses, displacements, currency devaluations, wars, etc. You can never know what the next crazy, random market event is going to be. But all these big historical events are already in the data you are developing with. If you do your homework, your system should be able to deal with these events by changing sides or exiting the positions or reducing risk, etc. This should be built into your rules. If you sincerely believe that you can trade better than the system when there is a news event, then you should just skip the system all together and trade discretionary ONLY when there are big news events. You basically just said that you can do it better than the system. So, there must be some opportunity for profit there since you are so good at knowing what to do in extreme market events. Think of extreme news events that have happened in your data set and go back and look at them. See if there is something about them you can build into your system to deal with them in the way you think is best. But, I warn you, there is a cost. If you are going to place stops to try to protect yourself in these extreme times, you need to dramatically increase the slippage you are charging your system in testing. I can tell you about a day within the last 4 years where I took $20,000 dollars of slippage on a stop execution. I think I had 4 or 5 contracts. "What wacky, illiquid market was that?" you might ask. It's really obsure ... 30 year Treasury Bonds. When you see system vendors use slippage and bro of $50 per contract, or maybe you've done it yourself, DON'T BELIEVE IT!! Even liquid electronic markets sometimes have crazy gaps. Or your broker fouls something up. Or YOU foul something up. It's going to happen. So you need to be very conservative with those slip numbers. By the way, if I had not used a stop in the t bonds, I think I would have actually made money that day. So it goes ...
Beng
I use CSI. I used to use Genesis. And I think they are fine. But I like CSI's international coverage and the terrific flexibility they give me in outputting raw data vs. adjusted etc.
I do NOT appreciate their extra charges for accessing more than x number of markets in a portfolio. Since you PAID for all the data, you should be able to USE all the data. I know, I know, it's a "license." But then they shouldn't be bragging about how much data you are getting when functionally, you are getting dramatically less data.
I use eSignal's MarketCenter product so that I can get quotes from any web connection, even behind a firewall. It is not feature-laden, but it works fine for getting a general indication of where spreads are during the day, which is all I need. My systems don't need intraday quotes.
As for the currency issue, MOST of the time I just cheat and use a general average value embedded in the tick value. When I am REALLY serious about precision, I convert the data manually in Excel so that the daily prices are in USD per 1 contract of the non US market and set up the tick values etc accordingly. Basically, this makes it work like an equity in the system test. How do you do it, Beng?
I think I heard that version 2.0 of TradersStudio might do this for you. Perhaps Murray can answer that?
I use CSI. I used to use Genesis. And I think they are fine. But I like CSI's international coverage and the terrific flexibility they give me in outputting raw data vs. adjusted etc.
I do NOT appreciate their extra charges for accessing more than x number of markets in a portfolio. Since you PAID for all the data, you should be able to USE all the data. I know, I know, it's a "license." But then they shouldn't be bragging about how much data you are getting when functionally, you are getting dramatically less data.
I use eSignal's MarketCenter product so that I can get quotes from any web connection, even behind a firewall. It is not feature-laden, but it works fine for getting a general indication of where spreads are during the day, which is all I need. My systems don't need intraday quotes.
As for the currency issue, MOST of the time I just cheat and use a general average value embedded in the tick value. When I am REALLY serious about precision, I convert the data manually in Excel so that the daily prices are in USD per 1 contract of the non US market and set up the tick values etc accordingly. Basically, this makes it work like an equity in the system test. How do you do it, Beng?
I think I heard that version 2.0 of TradersStudio might do this for you. Perhaps Murray can answer that?
Murray Ruggiero
Sponsor
Sorry, but I really have not felt well the past week, so I am struggling to get my work done and it has not left a lot of time for Elite Trader. I hope to be caught up by tomorrow or Friday, so I can spend some time and finish this course. I am sorry for the inconvenience.
Murray Ruggiero
Sponsor
Yes you are correct. When you add a futures market to TradersStudio 2.0 and set it data universe, you can assign a conversion file for the currency. This is the Forex cross rate with the base account currency. We can handle both direct and indirect conversion, for example 1.25 dollars per euro or 1.00 dollar= .80 Euros.
In addition you can mix both US and Overseas markets in the same session ( portfolio trading one system).
The Currency conversion is available on a bar by bar basis so , when applying money management you can do the conversion between currencies for correctly sizing the position.
This technology is very powerful and one of the many features we have added.
Murray Ruggiero
Sponsor
I really don't believe in very short timeframes for trades. I might use 5 minute bars on a chart but I really want to see trades last ideally at least 3 hours. It is my belief and some will disagree, that the stock indexes and bonds will give at maximum 1-3 trades intra-day and this will happen 10-12 times a month. Any more than that your taking trades with less than idea risk /reward.
In most intra-day systems I have designed, I have a set up for a trend trade and a failure trade. The failure trades are very profitable when they occur.
Remember you really only make large profits on large range days. Your goal is to predict these days.