Fully automated futures trading

[HobbyTrading]

Welcome to this journey @tokei ! ("時計"?)

Here are the list of questions I have asked Rob:

1. how to smooth carry signal
2. his opinion on my decision of reducing weight for carry rule
3. difference in scaling factors for MAC between Systematic Trading and Leveraged Trading
4. his opinion in utilizing leverage in long only portfolio
5. how to determine factor "N" in estimating trading cost

There could be some more, but that is all I can remember for now. Rob answered all the questions elegantly!

Regarding #2: for what it is worth: I don't use the carry rule at all. I only use the EWMAC and "breakout" rules.

Diversification is a good thing. However, if your account is not large enough then you should limit the amount of diversification. My rule of thumb: calculate for each instrument how many contracts you can hold if the forecast is at its maximum value. If you can only hold a maximum of one or two contracts then it is better to remove this instrument and divide the available risk capital over the remaining instruments.

 

[ValeryN]

Just finished reading the chapter about a systematic stock trader in the new Market wizards., the approach appears so simple : just find an "arbitrary" rule that works and doesn't depend on parameters too much, backtest it and trade., when the rule stops working, just stop trading it and either "fix" it or find another
I mean literally, the rules described there are like "buy the dip in an up-trend and close on a new daily high or after 5 days + don't risk more than x% of your portfolio on a single position". And apparently this actually worked with an average return of 20% for 20 years . Not without hiccups, though, when some of these rules were breaking down it was hard to identify it in time before loosing a substantial amount..
But with such an approach it appears the only thing that's needed is a fast and convenient to use software to test a bunch of these rules and that's it..
Hmm.. not sure what I think about that..

Marsten been around for so long, and thru very different market types, that it is hard to discount his bottomline. I personally known him since around 2013 or 2014, and never seen anyone so honest and down to earth. Quite often, people are better at Doing rather than explaining how to do it to others. He is kinda like that. He has a great feel for what is outside of expected parameters and when a change to a system is actually needed. It certainly evolved over time from what you are describing, and he doesn't change his systems as often as he use to.

You can count me as a descendent of his method and I write about my trading in a satellite journal to Rob's - Fully Automated Stocks Trading. That might give more details for those who are interested.

Btw, really appreciate all work Rob has done for the community. Incredible stuff. Math you guys are talking about here is above my pay grade so I just keep doing what works for me

Val

 

[sef88]

Marsten been around for so long, and thru very different market types, that it is hard to discount his bottomline. I personally known him since around 2013 or 2014, and never seen anyone so honest and down to earth. Quite often, people are better at Doing rather than explaining how to do it to others. He is kinda like that. He has a great feel for what is outside of expected parameters and when a change to a system is actually needed. It certainly evolved over time from what you are describing, and he doesn't change his systems as often as he use to.

You can count me as a descendent of his method and I write about my trading in a satellite journal to Rob's - Fully Automated Stocks Trading. That might give more details for those who are interested.

Btw, really appreciate all work Rob has done for the community. Incredible stuff. Math you guys are talking about here is above my pay grade so I just keep doing what works for me

Val

I'm sure all the statistical arbitrage (I presume? Mix of interday and intraday) stuff you are doing is not trivial either - mathematically, programming wise.

 

[Kernfusion]

Hi Kernfusion, thank you for sharing!

I envy your visualizations and coding skilks. This is something I am learning right now. I still have not able to run backtesting myself.

Now I have 30 instruments listed in my portfolio. I don't have GBM and Nikkei, but instead have a few more European/Asian stocks and currencies. And the rest is almost same as yours. I needed to drop SMI and VIX since I lost some money in the last couple of weeks.

Great to know what others are doing. Thank you again!

The visualizations are all Matlab + a primitive Angular web site which I run on the same server to display the images and some numbers for convenience. It's really nothing. The key is to keep the codebase "of everything" small (YAGNI and all that..), or I start forgetting how things work and it becomes hard to change when needed..

Marsten been around for so long, and thru very different market types, that it is hard to discount his bottomline. I personally known him since around 2013 or 2014, and never seen anyone so honest and down to earth. Quite often, people are better at Doing rather than explaining how to do it to others. He is kinda like that. He has a great feel for what is outside of expected parameters and when a change to a system is actually needed. It certainly evolved over time from what you are describing, and he doesn't change his systems as often as he use to.

You can count me as a descendent of his method and I write about my trading in a satellite journal to Rob's - Fully Automated Stocks Trading. That might give more details for those who are interested.

Btw, really appreciate all work Rob has done for the community. Incredible stuff. Math you guys are talking about here is above my pay grade so I just keep doing what works for me

Val

- Great stuff, will check it out, thanks!

 

[tokei]

Welcome to this journey @tokei ! ("時計"?)

Regarding #2: for what it is worth: I don't use the carry rule at all. I only use the EWMAC and "breakout" rules.

Diversification is a good thing. However, if your account is not large enough then you should limit the amount of diversification. My rule of thumb: calculate for each instrument how many contracts you can hold if the forecast is at its maximum value. If you can only hold a maximum of one or two contracts then it is better to remove this instrument and divide the available risk capital over the remaining instruments.

Hi HobbyTrading! What a fancy name. My hundle name means exactly it - clock in Japanese. It means nothing to me personally. I needed some handle name when posting questions to Rob's website, as it appeared that my gmail account name is shown otherwise. I decided to use same hundle name here for simplicity.

It is great that you run your own research to make your own solid decisions. This is something I lack (am making progress on this area!),and right now I am blindly following Rob's method. In regards to the market diversification, I use Rob's method with thresholding. Hence I set minimum number of contracts by instruments to be 0.5.

However I noticed some difficulty in dealing with this thresholding methodology. Some instruments cross the boundry between "with-thresholding" and "without-thresholding", as their vol changes. For example yesterday my CL does not require thresholding, as the max position size was greather than 2, but suddenly today my CL requires thresholding, as its max position has now get a little smaller than 2 (1.998 or something). And what is worse is that my system was telling me yesterday to hold 1 contract for CL, but today it tells me to sell the 1 contract, even though the signal has not weaked. The system is right, because the CL today requires stronger signal to hold 1 contract, because it falls under the category of "with thresholding". Same happens for boundary between "with-thresholding" and "not tradable anymore even with thresholding".

Not sure if I made myself clear above... but the point I guess is that I am facing difficulties (major or minor) I need to find solution somehow, and I find myself enjoying the process!

 

[tokei]

Correction: 0.5 --> 1.0

I manage instruments with what I call base postion (no. of contracts at forecast = 10). Hence the confusion. Sorry about that.

 

[tokei]

Welcome to this journey @tokei ! ("時計"?)

Regarding #2: for what it is worth: I don't use the carry rule at all. I only use the EWMAC and "breakout" rules.

Diversification is a good thing. However, if your account is not large enough then you should limit the amount of diversification. My rule of thumb: calculate for each instrument how many contracts you can hold if the forecast is at its maximum value. If you can only hold a maximum of one or two contracts then it is better to remove this instrument and divide the available risk capital over the remaining instruments.

Hi HobbyTrading,

What made you remove carry rule completely out of your system? I saw you wrote in this thread that the signal is not stable. I was curious as I know the carry sigal smoothing was also discussed somewhere in this thread.

Now my weight for carry rule is 33%. Moving average cross over 33%, and breakout 33%. All equal weight.

 

[HobbyTrading]

Hi HobbyTrading! What a fancy name. My hundle name means exactly it - clock in Japanese. It means nothing to me personally. I needed some handle name when posting questions to Rob's website, as it appeared that my gmail account name is shown otherwise. I decided to use same hundle name here for simplicity.

I used to live in Japan for a couple of years, and speak a bit of Japanese. Which is why I recognized your handle name.

It is great that you run your own research to make your own solid decisions. This is something I lack (am making progress on this area!),and right now I am blindly following Rob's method. In regards to the market diversification, I use Rob's method with thresholding. Hence I set minimum number of contracts by instruments to be 0.5.

However I noticed some difficulty in dealing with this thresholding methodology. Some instruments cross the boundry between "with-thresholding" and "without-thresholding", as their vol changes. For example yesterday my CL does not require thresholding, as the max position size was greather than 2, but suddenly today my CL requires thresholding, as its max position has now get a little smaller than 2 (1.998 or something). And what is worse is that my system was telling me yesterday to hold 1 contract for CL, but today it tells me to sell the 1 contract, even though the signal has not weaked. The system is right, because the CL today requires stronger signal to hold 1 contract, because it falls under the category of "with thresholding". Same happens for boundary between "with-thresholding" and "not tradable anymore even with thresholding".

Your CL example makes sense: there was a relative large price spike recently, so the volatility of the instrument went up. And, due to that, the maximum position size went down. In your case this made it cross the hard limit that your software had set. You will experience this many more times: your software detects that a certain border is crossed and takes action. Whereas you would have left things unchanged based on your own "intuition", or "gut feeling".
I do know about that thresholding system of 1 contract. But I feel that that level is too low and the software can not properly adapt the position size to a change in forecast. Rob once wrote a blog entry where he showed the dependency of SR on the maximum position size. It is this post which made me decide that I prefer to only trade instruments where I can have 3 or more contracts at maximum forecast.

Edit: I found that blog entry. https://qoppac.blogspot.com/2016/03/diversification-and-small-account-size.html
Halfway, in the section titled "Putting it together" there is a graph. My approach is based on what I see there.

 

[sef88]

Hi HobbyTrading,

What made you remove carry rule completely out of your system? I saw you wrote in this thread that the signal is not stable. I was curious as I know the carry sigal smoothing was also discussed somewhere in this thread.

Now my weight for carry rule is 33%. Moving average cross over 33%, and breakout 33%. All equal weight.

@HobbyTrading

 

[HobbyTrading]

What made you remove carry rule completely out of your system? I saw you wrote in this thread that the signal is not stable. I was curious as I know the carry sigal smoothing was also discussed somewhere in this thread.

I wrote my own software implementation of the trading system as described in Rob's book "Systematic Trading". For EWMAC and breakout rules calculations you only need the current contract price history (sometimes a stitched version with older contracts to get enough price history). For the carry rule you need two contracts, in order to compare the prices. I am too lazy to maintain a database of two contracts for each instrument. And each time I roll over a contract I would also need to roll over the second contract which is used for the carry rule calculation. I'm too lazy to do all this, so I decided to leave it out.