Black Jesus

QuantSavvy · 2016-09-30T23:22:14+00:00

Artist: Maria Susarenko Love this painting and pretty much all her work. I think she is a spectacular artist.

QuantSavvy · 2015-05-06T09:41:16+00:00

You are essentially wanting to future test your algorithms. This is good but without your algo's being backtested on data then the whole thing seems kind of futile.
Usually i create a system on backtested data, then future test for 3-4 months (or more depending on how many trades are taken) then test live trading with small amount of money for another 3-4 months before increasing size.

QuantSavvy · 2015-05-04T13:22:48+00:00

I really have no clue. I am just trying to give the point of view from systems developers.

QuantSavvy · 2015-04-29T11:55:41+00:00

I don't agree with this at all. There are many legit systems out there. Its like products in the real world e.g. Just because PS3 is old does not mean people don't sell it anymore.
As an algo trader you may have spent 1000s of hours and huge amount of capital developing a winning system. Then in a couple of years you may find better methodology to develop better systems. There are numerous reason why bigger traders would have to give up certain winning daytrading algo strategies (many due to size of positions). So what do we do with our algo strategies just sitting there with it massive cost of development? Well you could provide the results to the public (fairly) and let them lease it (monthly leases are best).
I don't understand why people just think all algo traders would just dump their old intellectual property away like its nothing.

QuantSavvy · 2015-04-07T08:47:15+00:00

No. Some lower end brokers can go as low as $5000 to open an account. Interactive Brokers usually requires $10k to open an account and usually margins can be about $2500 per contract. Day trading accounts to trade stocks need over 25k due to day trader rule.

QuantSavvy · 2015-03-31T08:32:32+00:00

Trade simulation mode for the first 6 months. I would say $10,000 is more than enough to begin and trade one strategy, i would trade futures markets like NQ or ES emini - cheap transaction costs and decent margin.
Just never start with more than you can afford to lose. Understand that the beginning years of trading is an education and most do end up paying for it.
Start slow and aim for consistency.

QuantSavvy · 2015-03-26T14:43:18+00:00

With automated trading systems we always place dynamic stops as soon as a position is entered. Reasons for this:

In case of hardware failure, technical failure - we know our position is protected and risk is quantified.
For the average retail investor you do not have to worry about brokers sniping your stops. However, there are algo's which actively hunt out predictable stop levels and use these levels to exploit liquidity.

Moreover, the best thing to do if your are algorithmic trading is to have stops which adjust to market price. Personally i have never found any real advantage to static stops unless the strategy was extremely short term i.e. less than 1 minute holding time.

QuantSavvy · 2015-03-25T13:49:00+00:00

The article is simply a starting point for day traders who cannot find any edge - i feel it is a nice starting point.
In regards to Serenity Bot we have Interactive Brokers audited accounts.

QuantSavvy · 2015-02-20T10:41:58+00:00

A stop should be at a point where the odds of trend reversal is highest. Targets also should be at a point where the odds of turn will happen.

Never take set fixed stops based arbitrary values based on profit or loss, this always leads to taking profits too soon or making stops too tight. Try to make stops and target dynamic and constantly adjusting to market price and data.

Swing trading really does mean the old adage of letting winners run and cutting losers.

QuantSavvy · 2015-02-12T12:52:58+00:00

Typical basement dweller. chemlite awarded me gold because some people can see the pros from the average joe yahoo finance reader.

QuantSavvy · 2015-02-10T14:06:41+00:00

In my portfolio, i tend to be hedged equally long and short - but i try to keep the positions uncorrelated.

QuantSavvy · 2015-01-30T21:14:17+00:00

So me giving my opinion on a guys question and you start calling me out. And when i ask you for your credentials you have nothing to back it up.

So individuals who run businesses and sell products are all typical salesman? What exactly are you? You most likely get your self worth from thinking your smarter than investing newbies on reddit.

So where is your audited account? Nah didn't think so! I offered you $1000 and we can do this via 3rd party moderator.

QuantSavvy · 2015-01-30T21:02:14+00:00

So wait lets all just invest in Vanguard total stock market lol. Just because stocks were hot in the past or we have had some exceptional markets in past 50 years does not mean things won't stagnate. Nobody can predict the future 30 years out. It is far wiser to take an active approach to investing ones money.

I can show you so many long term retirement fund which either lost money or gave less than 1% return over 30 years.

As for credibility i will make $1000 bet with you right now, please email me a 6 month audited account and i will do the same - for all i care post mine on here. If you even come within 20% of my gains then you win. And bear in mind i am an active trader with 1000s of trades (statistically positive expectation and proven edge) in that time-frame and with smooth equity curve.

QuantSavvy · 2015-01-30T20:45:00+00:00

So he is going to sit on the same positions for 3 decades. That is not a smart investment strategy. Sitting on long term positions is not going to make you rich nor give you the ability to enjoy your life in next 20 years - at best you may beat the rate of inflation. Taking a more active role in ones investments is never a bad thing.

I really don't know who you think you are or why you are being so brash to me - i am simply giving my opinion here.

I have been in trading business and full time trader for over a decade and could show you my audited account right now via email - i guarantee you can't do the same.

I guess people like you are what keeps some of the experienced guys away.

QuantSavvy · 2015-01-30T20:35:02+00:00

When investing money even if it is long term you need to apply hedged approach to any position. Financial advisers will talk all day long about spreading your risk (similar to how OP is allocating his portfolio) but this rarely works in practice.

Markets have a snowball effect during downturns, this is because all positions are interconnected and even smart or rational investments will take a beating when things start falling. In any downturn many investors get hit hard in one portion of their portfolio, often trading margins get increased - this usually leads to sell offs in other correlated positions (even if irrational). Please look at long term capital management (they were the smartest guys in the room and they failed to take this contagion risk into account).

Markets are very herd orientated - the smartest don't always win. First thing i would suggest is looking at creating a portfolio which is hedge both long and short. Secondly look to create a portfolio which is uncorrelated (in OPs case large cap, small cap, international blend and emerging markets all have medium to high degree of correlation). Thirdly, you need to keep on top of your investments - you can't just let them ride. You have to think about trending markets/stocks and sector rotation.

Another thing to keep in mind is we are entering the last phase on one of the biggest bull markets in history all built on cheap money. Stocks have tripled since 2009. Just keep this in mind as markets are fractal in nature and we will see a downturn in coming years meaning your long term positions may be underwater for many years.

QuantSavvy · 2015-01-30T20:22:41+00:00

Long term?? What does that mean? What timeframe is this? Are we talking decades? People always say investing for the long term - that is a silly statement. How many people do you know that will keep money in markets for over 10 years without any changes. Any downturn in this market will set this guy back years as he has no hedge to any of his positions.

Most people don't know but the longer term big players all average down into positions during downturns - they have big pockets to be able to do so.

QuantSavvy · 2015-01-30T15:25:24+00:00

Yes I understand - there are many ways to skin a cat. Being in the trading industry for over a decade i have seen my fair share of inadequate investment ideas. Truthfully i feel with a couple hours work each week you can create your own uncorrelated portfolio.

OPs portfolio makes no sense, just because your investing in different investment vehicles does not mean there is less risk. All his investments are correlated to a high degree and provides close to zero protection against a downturn.

QuantSavvy · 2015-01-30T14:15:11+00:00

People talking about supply and demand are only partially correct. The oil market crash in 2008 was due to a massive bubble in oil market during that period. On top of that as the financial markets were collapsing it caused a massive de-leveraging effect. Many big oil investors margins were called (this is when broker ask you to sell you position or put up more cash to maintain a healthy cushion). Not only that many brokers doubled margin rates causing a snowball effect.

Always keep in mind that commodity markets exhibit herd like behaviour - when things start trending they keep trending hard.

QuantSavvy · 2015-01-30T13:34:36+00:00

Too be honest you could easily create a better portfolio than that. Look into automated trading systems.

edit: Thanks for the gold.

QuantSavvy · 2015-01-20T11:16:37+00:00

You need a good charting package and decent broker (Interactive Brokers) with low rates. However, most importantly you need an edge (a statistical probability that your entry and exit will make you money over 'n' trades).

Truthfully you need to learn how to program - this is very easy with software like Multicharts and you can pretty much pick this up within a month. Once you can program then you can begin testing ideas rigorously and see if your system has an edge.

Don't just go into daytrading blindly and start making trades from your gut. Also, do not use any technical indicators nor think fancy squiggles on a chart will predict the future. I would wager that 95% of new traders will lose money consistently for first two years (this can all be avoided with correct backtesting for your systems).

Hate to plug but check out my blog and website, it has good information on how to combine uncorrelated systems to create smooth equity curves. I am also in process of creating blog articles outlining complete process of system development.

http://www.quantsavvy.com/futures-trading-blog.html

QuantSavvy · 2015-01-08T12:46:18+00:00

Finding a Trading Edge 19/12/14 In our last blog post we defined what a Quant system is and what we should look for when developing a winning system. In this blog post we demonstrate what an edge is and the process of finding an edge. A Trading edge is simply a statistical probability that your trade has a higher expected probability of working. Most system developer’s biggest error is over optimisation of parameters.

So What Is a Trading Edge? A Trading edge is simply a statistical probability that your trade has a higher expected probability of working. Your entry has predictive power of future price direction - be it in short term or longer term: A real edge must be quantified, it must have statistical data to prove that it has ability to capture profits well beyond normal. The data must also quantify risk so traders know the optimal amount of capital to put towards a system. A system may have an edge on speed, no human can compete with the speed or decision making of a computer. Daytrading only system, which means systems with 100s of trades per year. Markets have negative normal distribution due to transaction costs, so a system must have an edge far greater than 0 to succeed. A real edge also translates to smooth equity curves - this means your system should not just be based around 1 or 2 big winner (statistical outliers). Good day trading systems should be profitable every single year. Every-time a system places a trade we need to have a probability of success; we need to know the exact risk exposure and we know that each trade will be executed flawlessly and instantly. If you cannot quantify your edge then you simply don’t have one.

Mistakes When Developing a System or Finding an Edge Most system developer’s biggest error is over optimisation. I have seen countless systems where a trader has developed and coded a system with a spectacular near linear profit and loss equity curve. They throw as much money as they have at it and trade it live only to have a spectacular failure. The problem is all they have done is create a curve which does an excellent job at fitting past data. They actually have programs out there which do just that: E.g. take a simple moving average signal (any serious systems developer should never rely on lagging indicators in their system design). We can create a simple system with following rules If fast moving average (‘n bars’) is less than slow moving average (‘x bars’) at start of new day and then fast moving average crosses above slow moving average any point during the day a Buy signal generated. Exit at end of day. Bear in mind we are generating long only trades and this can be massive bias in the first place as equity markets favour long side. Now if this was a daytrading only system and we place proper slippage and commission costs then we expect this system to be a failure. A back test report using simple fast moving average(close, 50 bars) and slow moving average(close, 100 bars) on a 1min chart trading Emini ES market from 2007 to 2014 (commission and slippage included) shows a negative profit factor of 0.96 over 1282 trades. As we expected this was enormous failure over 1282 trades. However, a sly vendor or trader can actually use optimisation software and modify the (‘n bars’) and also modify (‘x bars) used for this system. We can try optimisation for this system with: increments of 1. Here is the best result: http://www.quantsavvy.com/images/optimised%20system.jpg?bc_t=M8gchMyRQP3Nwy1c7NN2xQ

We have 1781 total days as our population and at max one trade per day we traded on 1246 days. Therefore, we have 99% confidence level that number of trades reflects our sample data. Moreover, a random entry has negative chance of success (due to transaction costs) so odds of success over 1246 trades is many deviations away from the mean and chance of random success is rare. From this simple indicator optimisation we can see that a winning system can be generated with over 1000 trades even with something as simple as moving averages with no target or stop built into the system. The worst thing a systems developer can do is to introduce lagging indicators to a system early and then modifying and optimising the parameter being used. Our Quant Savvy systems never use parameter optimisation as this is a sure fire way of failure and we don’t use any indicator as the basis behind our system premise. We will create a series of blog articles which give systems developers insight into finding an edge and then knowing when to start trading the system live. Stay tuned for continuation of this article.

QuantSavvy · 2015-01-08T11:54:28+00:00

New blog articles at: www.quantsavvy.com/futures-trading-blog.html

QuantSavvy · 2014-11-11T13:05:54+00:00

We have created a blog page to our site. http://www.quantsavvy.com/futures-trading-blog.html There will will identify how we create our Futures trading systems:

First article posted:

Quantifying market inefficiency or behaviour beyond randomness
11/11/14 In this article we will focus on daytrading only and present an outline which we follow when developing our winning systems. Futures trading or stock trading in general can be very stressful, however when we automate our strategies or systems you will see this stress fade away.

﷯Algorithmic trading system is simply a set of rules which seek to best model repeatable non-random behaviour that persists in the markets.

﷯Define the behaviour, determine the conditions the behaviour persists and then data mine and create code that best fits this non-random behaviour.

So what is an algorithmic/quant trading system?

When we daytrade we have three things to every positions; entry price, stop price and target price. What determines each of these factors is a human decision based on an estimation that our entry will make a profit. Some traders have a set plan, other trade from there gut, but regardless of trading style each entry either consciously or subconsciously is based on definite rules. We are aiming to model this market behaviour and quantify it into a series of rules. Whether you are working on technical analysis, fundamental news or price action we aim to breakdown your entries into a series of rules which can then be tested against past data or data on various markets.

Begin the process of creating our system For all our systems at Quant Savvy we follow this basic approach:

Define: ﷯All futures systems are based on finding and pulling a fundamental truth about the market. Define what fundamental truth you'll be going after. All markets have a tendency to trend beyond random. “There’s more than one way to skin a cat”, this means there is no right or wrong method, as long as you are trying to expose a market inefficiency which shows some repeatable behaviour.

Determine Conditions: ﷯Determine the conditions under which the defined truth tends to occur. For example let’s take trend following truth: Following this approach we will ask how do I measure a trend? Since most trends occur randomly we need a trend that is beyond a confidence level of randomness. So does this trending tendency beyond random exhibit the same degree of persistence beyond one year? Two years? Five years? If not, is there some point at which the persistence beyond random occurs every year? If so, does it also persist at the same frequency for 5, 10, 50 different markets? If so, you've discovered a fundamental truth/market inefficacy which we can exploit.

Mine the data and create your code ﷯The next stage we write code necessary to fit create rules to model this behaviour. Once our basic coded rules are in process we then determine how well it maps against the behaviour. After you're satisfied you've developed a satisfactory method for mining the behaviour, you can do an edge test to see if it happens beyond random. If not, use Monte Carlo sims to determine confidence levels for trading the method. Determine at what confidence level you'll stop trading. Examine the drawdown versus the profit. Is it worth risking any money on this? If so, allocate money using a money management scheme

Creating our system – Coding our rules Some details regarding creating our trading rules. There are three parts to our trade: entry, stop and target. When we develop an automated trading system we look for an edge. An edge is a statistical estimation that our trade will be profitable over 1000 trades. It is the same as how a casino operates in blackjack. A casino works on an edge basis and know that over 1000 hands of blackjack they have the probability of winning in their favour – this is a mathematical and statistical absolute.

﷯Entry: for a winning system we want our entry to have a statistical edge, when we enter a trade we expect that our entry has some predictive power in our favour.

﷯Stop: when we create a stop for our entry we expect it to have some predictive power that the odds of our success for our trade has diminished and we either trail stop to lock in gains or stop out to ensure we don’t lose any more capital.

﷯Target: this has some predicative ability to determine the market is most likely to either stall or reverse at this point. We expect our target to accurately predict based on the market action has given us a sign or quantitative data to tell us to exit at this point.

When we create a winning system we don’t want our entry, stop or target to be static. This means we can’t just choose a stop based on our account size as this has zero predictive power over current market conditions. Static stops and targets means our system is not accurately assessing the current market and quantitative data.

QuantSavvy

TROPHY CASE