Intelligent swing trading algorithm

[digitalnomad]

Do you have access to historical options data? If so, I don't think it would be too much effort to create a prototype to test your idea. Really, all you need are backtested trades from the underlying and then line up the entry datetime with a corresponding option datetime and have some logic built in to determine which option to buy. And then you would exit the option trade when you would have exited the underlying trade.

That's exactly the idea I had in mind, but I wouldn't even deal with historical option data, or backtested option trades. I'd just design the algo to run live trades based on underlying signals, a month or two on a sim account for stability checks, and then small capital commitment. Perhaps I can get my front end to send an email alert to a developer who can build an App to work the option logic from there. I have no intention of coding this up. My brain is fried.

 

[digitalnomad]

spray the limit grid.

Say what? Last time we communicated, we discussed game/gambling theory, which by the way, still fascinates me

 

[tommcginnis]

The uncertainty with the options lies in entry and exit slippage. It's very hard to quantify.

And theta burn -- 100% suckage for that long investment.

 

[digitalnomad]

And theta burn -- 100% suckage for that long investment.

I was hoping the back month approach might alleviate some of that.

 

[qlai]

I’m considering investing time and money into the development of an intelligent algo/app that can use my signals

Did you try paper trading it (forward testing it)? Wouldn't that answer your questions? Just curious.

 

[digitalnomad]

Did you try paper trading it (forward testing it)? Wouldn't that answer your questions? Just curious.

On the underlying yes, forward and back with positive expectancy. The option part is what needs to be built and live tested. For this swing system to be worth my time and capital, a leveraged vehicle is needed, enough that the performance can at least 1/2 match the returns on my intraday systems.

 

[qlai]

The option part is what needs to be built and live tested.

Right, I am not understanding why you can't forward test the options part ... If it's a swing system, you should have plenty of signals you can take manually, no?

 

[digitalnomad]

Right, I am not understanding why you can't forward test the options part ... If it's a swing system, you should have plenty of signals you can take manually, no?

It averages few trades per instrument, per month, so theoretically to get a significant enough sample size, would take years. I don't mind throwing some real money at it for a year or two. If I lose 1/2 my stake, consider it a research cost. If it works, than the system is monetized, instead of sitting on the shelf collecting dust.

 

[BrooksRimes]

"The algo is also intended to exit the option position based on its underlying stop signal, so that means a CBOE market order (bend over baby)."
I would use a limit order and add $0.10 to $0.20 or so to the mark price, so you don't get screwed by the MM yet still get filled (99% of the time).