ROBOT autotrading futures (through IB Gateway)

Quote from fullautotrading:


it would be suicidal to grow a long position,
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Hi Tom,

not if EUR goes to 2.5 ;)

Effectively if you cumulate "mean reverting" strategies, at some point they will all be short during EUR rise (if we agree that this rise is "out of norm"). The only way to really find diversification is by adding a trend following strategy, or even better a strategy that anticipate trend.
Instead of entering long for your trend following strategy when usually the mean reverting strategy starts shorting, you enter long during low volatility period, expecting the market to break. Then your mean reverting strategy allows you to eventually take some profit and reduce your global exposure and your risk on the same time.
In that way you can find a real diversification.

Over a long period and depending of the timeframe these strategies (breakout anticipation) may be flat only, but as your target is to find a global lower drawdown, that wouldn't be a problem.

For the same reason, instead of adding an instance on the same market but with different parameters, add an instance on an uncorrelated market (soft commo are perfect for this). You may have flat results on this particular market, but there is high probability your global equity curve looks better.
 
Quote from unco:

Hi Tom,
not if EUR goes to 2.5 ;)
....
For the same reason, instead of adding an instance on the same market but with different parameters, add an instance on an uncorrelated market (soft commo are perfect for this). You may have flat results on this particular market, but there is high probability your global equity curve looks better.
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If you start 1.25 you go up 1.34 then you see a retracement to 1.33. You are out, and probably even begin shorting. So you may be making my same point ;-))

One thing to note here is that this is already coded as an <b>overlay of 2 trending strategies</b>. So adding a trender could simply mean choosing which side to "overload". And we may back to "prediction" (a word i removed from my vocabulary). The intuitive point is that being direction "unpredictable" (or having to assume that), all the profitable strategies mainly works with retracements/reversals, with a neutral approach.

Algorithmic directional strategies tend to be a zero profit game (in the best case) due to embedded losses (stop/reverse) and direction unpredictability.

You may be right, i think, a zero-profit directional strategy could be overlaid just for the purposes of smoothing the equity curve, and possibly might improve hedging in extreme scenarios.

The current strategy is fundamentally good most of time, but we need to do something for the extreme scenarios; might add a trending component which would "emerge" in case of instruments tracking together unidirectionally, a sort of "macrostop". Should create a sort of "elastic" effect with a "transition" from neutral countertrending to directional trending in order to stay bounded. A directional algorithmic strategy per se is, usually, at best, a 0 zero-profit game, but overlaid on a neutral basis may provide hedging.

Though, putting together the game can be quite a challenge.

In any case <b>if large capitals are available</b>, i still suspect that the current strategy would yield the greatest performances, in terms of AvgProfit/MDD (max investment).

Beautiful idea unco! Let me give it a try... will be back with results, and in case we might compare approaches.


Tom
 
Hi friends,

i am adding a trending algo over the original one. Since this actually give rise to a <b>new strategy</b>, i will start a <a href="http://www.elitetrader.com/vb/showthread.php?s=&threadid=208265"> new thread</a> to discuss it.
Everyone is invited to join the discussion :-)

Thanks a lot for all the ideas and the smart contributions so far!

Tom
 
I know this is an old thread (and so apologise for joining the class after everyone has already left the room! ... but I can see the professor is still at the front gathering up his lecture notes ...), but it's fascinating and I have some questions ...

Quote from fullautotrading on 09/30/2010:
... Algorithmic directional strategies tend to be a zero profit game (in the best case) due to embedded losses (stop/reverse) and direction unpredictability... A directional algorithmic strategy per se is, usually, at best, a 0 zero-profit game...
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Forgive me if all my questions achieve is to reveal my ignorance, but ...

a) why is direction any more predictable in a potentially (or would "hopefully" be a better word?) mean reverting situation than in a potentially ("hopefully"?) trending one?

b) why are you attributing "embedded losses" only to trending strategies?

Thanks.
 
Quote from abattia:

I know this is an old thread (and so apologise for joining the class after everyone has already left the room! ... but I can see the professor is still at the front gathering up his lecture notes ...), but it's fascinating and I have some questions ...

Forgive me if all my questions achieve is to reveal my ignorance, but ...

a) why is direction any more predictable in a potentially (or would "hopefully" be a better word?) mean reverting situation than in a potentially ("hopefully"?) trending one?

b) why are you attributing "embedded losses" only to trending strategies?

Thanks.
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Hi abattia,

thanks for contributing. Mkt is a constantly humbling experience, and the day i meet a "professor" of trading I can be pretty sure he might still be a professor, but about market has little experience for sure ;-))

As to question b) i don't feel i am attributing something to a class of strategies *only*. One can clearly experience losses with any kind of strategy. (Another issue is how one defines "losses".)

About point a) <b>"prediction"</b> is one of the concept i don't use. In fact if you see also the most recent thread:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=208265&perpage=6&pagenumber=17
is all based on the idea that i choose to deliberately <b>"ignore"</b> (for the purposes of autotrading) the possibility of <b>predicting</b> market.
This is a constant trait of my current approach.

Tom
 
Quote from fullautotrading:

Hi abattia,

thanks for contributing. Mkt is a constantly humbling experience, and the day i meet a "professor" of trading I can be pretty sure he might still be a professor, but about market has little experience for sure ;-))

As to question b) i don't feel i am attributing something to a class of strategies *only*. One can clearly experience losses with any kind of strategy. (Another issue is how one defines "losses".)

About point a) <b>"prediction"</b> is one of the concept i don't use. In fact if you see also the most recent thread:
http://www.elitetrader.com/vb/showthread.php?s=&threadid=208265&perpage=6&pagenumber=17
is all based on the idea that i choose to deliberately <b>"ignore"</b> (for the purposes of autotrading) the possibility of <b>predicting</b> market.
This is a constant trait of my current approach.

Tom
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OK, thanks. I'll get started on the later thread ...
 
Hi, Tom.

I just finish reading above info. and here I got a question.

As to clone instrument, make a long/short pair at the same time. There mightbe two questions.
1. one account can have 2 different direction position at the sametime or it is just an internal logic for references?

2. Suppose the trend is upward, so on the T side, we constantly buy & sell, making money. But on the CT side, we just hold the "investment".And vice versa. Is my understanding correct?

Thank you for your explanation in advance. I am sure you have improve the strategy by now, if so, just tell me to continue reading.

Lear.

Quote from fullautotrading:

<b> FIGHTING RISK: Overlaying robots, Cloning instruments and overlaying folios</b>

Once we have a strategy we like, next step is making a good <b>"trading architecture"</b> so that we can spread the risk as much as possible.
So, instead of increasing to size of each single position, we prefer opening "new instances".
We can open new robot instances, on the same account (same port, multiple clients) or on multiple accounts (multiple ports).
And, for each robot instance, we can overlay multiple folios.
Let's see how i have implemented that.

Look at the following picture. For each instrument, one can add 1 (or more) "clone instrument(s)".

<img src="http://www.datatime.eu/public/gbot/CloningFolios.png">

What is a <b>"clone instrument"</b> ? Assume I have AUD and I create the first "clone instrument". The robot creates the "clone" and calls is something like "AUD_C1".

What is AUD_C1 ? The robot considers it as a brand new instrument, but the price curve * is the same as AUD * (same tick data). AUD_C1 orders, clearly, will actually use AUD.
If we repeat that for all instruments (or some of them), we obtain a <b>"clone folio"</b>.
Now it should be clear that this way we are "spreading the risk". For instance we could activate the clone of each instrument when such instrument shows a sign of reversal (no need to activate the clone folio all at one time).
Clearly, when capital increases, we can overlay any number of folios. Thus reducing the overall risk.

So, we can easily have an architecture with :

M robots r1 ... rj ... rM (possibly working on different accounts), and each robot rj can work with a superimposition of F_rj folios (all out of sync).

This way we create a sort of generalization of common long / short pair concept which certainly most of the time can help reduce drawdowns and minimize the overall risks dealing with <b>large capitals</b>.
Clearly an external observer looking at the account activity will only "see" the "algebraic result" of the various superimpositions.
Sharpe/Sortino ratio will improve significantly due to variance reduction (and note that, for instance, this example strategy, without any overlaying has shown in backtest Sharpe ratios up to 9 in the best simulations).
In practice, more capital we have, and more the overall game can be "relatively"safer.

[Besides the rollover facility, which, practically, "joins" price curves will allow us continuing trading even if we get when caught in an "investment phase", so that we do not have to take the losses.]

Tom
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Quote from Lear:

Hi, Tom.

I just finish reading above info. and here I got a question.

As to clone instrument, make a long/short pair at the same time. There mightbe two questions.
1. one account can have 2 different direction position at the sametime or it is just an internal logic for references?

2. Suppose the trend is upward, so on the T side, we constantly buy & sell, making money. But on the CT side, we just hold the "investment".And vice versa. Is my understanding correct?

Thank you for your explanation in advance. I am sure you have improve the strategy by now, if so, just tell me to continue reading.

Lear.
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Hi Lear,

let me first answer the first question.
<b>>1. one account can have 2 different direction position at the same time or it is just an internal logic...? </b>

All positions must be vieved as "virtual". Clearly, in the actual account you will have the "algebrical result" of all the various virtual "position".
Similarly, if you have 2 instances of the bot, each one will play its own game, while the account will clearly have a position which is equal to the "algebrical sum" of the 2 robots. Each bot does not look at all at the real account: all PNL computations are self-contained (which also allow us to restore multiple trading sessions across different machines).

The bot works always with "virtual" positions. Even just 1 bot instance uses this concept, as it layers essentially 2 strategies and the orders issued are clearly a result of <b>"pooling" requests</b> coming from multiple strategies and multiple agents. For instance, if one agent requests a BUY and, at the same time, another one requests sell, what would happen is that "virtually" <b>both take opposite virtual positions</b>, but <b>no "actual" order</b> will be issued.
 
Quote from Lear:

Hi, Tom.

2. Suppose the trend is upward, so on the T side, we constantly buy & sell, making money. But on the CT side, we just hold the "investment".And vice versa. Is my understanding correct?
...
Lear.
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I sometimes talk of "countrentrending" or "trending", just to use a language more understandable to most traders or readers. In reality, i have a different picture in my mind, which i try to reflect in the strategic construction.

Let' s see if i can depict this vision of mine without sounding like a fool.

First of all, <b>forget</b> the concept of single trade. Forget take profit and stops.
Imagine instead a "grand scheme" to be built with patience. Like <b>a spider patiently build its web</b>. A sort of <b>"probabilistic cage"</b>, as i like to call it.

What will this "web" look like when "finished" ? Well, a well-formed web will have catched several "flies". On the ("relative") "bottom", we will see mainly BUY orders, and on the "top" we will see mainly SELL orders.
What is "in between" is all sort of magics and tricks to try to contain drawdowns as much as possible, relative to profit, and at the same time keep sliding with mkt. And this is where actual implementation and algorithmical variants may make the difference.

Tom

<img src="http://www.elitetrader.com/vb/attachment.php?s=&postid=3293218" />
 

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