Sunday, 21 July 2019

Real Order Flow is here

I have been working to evolve how I trade. My goal is fully automated trading. Why? Because it should be more profitable. I read about firms such as JP Morgan who are making millions of dollars every day with algo trading without a losing day for years.

If you have read this blog for a while you will have heard me talking about my meetings with two of THE guys of algo trading: Bob Pardo and Dave Aronson. I met these two guys - separately - in the 1980s and that was the start of my quest to become fully automated.

Having bought an Apple II computer in 1979 and joining the CompuTrac group, I had been using computers and technical analysis for a number of years before finding Pardo and Aronson. An article in a newspaper about artificial intelligence in about 1984 was what started me along this road.

I have finally created an engine to trade purely using order flow. No indicators. Only order flow triggers a trade. The chart below shows Sharkindicators' Raven utilizing logic that I created in their Bloodhound program that reads order flow perfectly and uses my criteria readin g that orderflow to trigger trades.

Exits can be varies according to the style and periodicity I want to trade.

The attached pic shows a very short term trading methodology for the e mini ES that looks to just grab a couple of points at a time and not lose much on a losing trade.

As you can see, this simple method last week made an average of $100 plus per day trading one contract. Just a 2 point target and a 3 point stop. Win rate is over 54%. No filters, just raw order flow.

I have created other Bloodhound logics that have some trend and overbought-oversold filters that do even better as they get rid of quite a few losers and take the win rate up considerably and reduce the draw down. But I wanted to show an example just using the raw order flow as it shows the strength of this methodology.

Guys, Real Order Flow is here!

 I plan on being more active with the blog again. I was pretty quiet for a while as I really didn't have anything new to say until now.

Monday, 22 April 2019

Algo Trading and the HUman Touch

The title of this post is taken from an article Mrs EL found on LinkedIn here.

2019 saw another shift in the way that markets are trading. Algos are more persistent than ever. When I look at the detailed order flow we now have access to I can see them in action. They can't hide any more.

However, it means that our algos have to be a lot more complicated. We had been doing well with the ELgos until early this year as we could draw a straight line through performance dots and make a nice profit most months. Then the next change happened and it was back to the drawing board.

We had been running our ELgo machine and created a new ELgo every day, taking the last few weeks of data and creating a new ELgo to trade the next trading session.

This doesn't work any more.

To create ELgos with low draw downs we need to run our ELgo machine for three distinct daily data sessions every day. This is impossible to do on a continuous basis in the time available  for other users as it would be a 24 hour operation. And I don't want a job.

There is a good solution, probably better than the original ELgo. It's HYBRID trading. I've been writing about this for years now but it looks to me that Hybrid is the best way to go as hybrid trading a single market has a return on capital is much higher than a single fully automated trading algorithm - I can earn in a week what an algorithm can make in a year as I can manage risk better and use my capital more effectively.

But there is a very big downside: I have to sit there and manage the trade.

Hybrid trading has a fairly structured methodology:
  1. We have designed and programmed an ELgo that I "arm" when I see a picture in the market coming together. by "arm" I mean that I click a button that tells the ELgo that it should instantly put on a trade when the conditions I have programmed are fulfilled. 
  2. The moment that those conditions are true, an order shoots out 
  3. As the order fills a series of targets and a stop loss appears on my chart at specific risk-reward locations. I then decide whether there are better places to put those targets and stop based on the order flow I saw and drag them there.
  4. I can then go an have lunch or whatever although if I stay I can move those targets and the stop as conditions change.
  5. In a couple of hours trading the DAX in the morning, take abreak til the ES, Gold or Crude is ready and I can trade another hour or so and then I'm done.
But I do have to be there some of my day. Fully automated trading was a way to be free of the screen but it looks like I can't do it for the time being. We are continually working to find something that will free us from having to spend more than a few minutes a day in front of the screen and will alert you guys when that happens. Meanwhile, "ching ching" with hybrid ELgo. Its Algo Trading with the Human Touch.

Sunday, 17 February 2019

Where Are We in the Market

Technology has changed so many things, including the way we trade. Gone are the chalkboards and hand signs of yesteryear. Now we have instantaneous electronic trades and access to on-demand (and sometimes unverified) global news.

However, technology has also changed the market itself. The markets have always been continually changing, but with technology, the markets change faster and suddenly. Not only do the markets change due to local events but also due to global events, and even rumours of events. The changeability of the markets is one of the reasons why people have a hard time getting to CP and also why algos degrade so quickly. 
Politics have always affected the markets but now the markets are affected by global politics. Currently, we have a number of political events that impact the markets on a regular daily basis:
1. The slowdown in China, which might affect quarterly results of large                companies
2. Brexit, combined with the uncertainty in Europe 
3. Changes in U.S. trade policy
4. The start of the U.S. presidential elections with candidates being named
5. Tweets from high-powered individuals, such as Trump

There are have also been an increase in the so-called “hundred year” events. These are likely the results of climate change effects; stronger storms, hotter summers, longer winters, flash floods or droughts. Australia just lost over 300,000 cattle to floods. The U.S. has been gripped by an insane cold front that saw snow in the deserts and could impact the growing season. 

After almost 10 years of a one timeframe rising stock market, things have changed. More uncertainty leads to shorter trends and swings. The markets are very reactionary to the things I have listed above which means that in designing trading algorithms one must take that reactionism into account. Up until the end of 2016 we were intent on catching the pullbacks to the upward trend. This was classic 2009 ElectronicLocal stuff that you saw in this blog for many years. Now things have changed. 

The way to deal with the markets now is to assume that nothing lasts for long. Everything is in a state of change. The aim now is to either catch or fade the next move, a much more difficult endeavour.

That is where ELgorithmics can help. Automated algorithms are becoming the only way to keep up with the speed of trading and the changing trends. ELgorithmics do not degrade and use the latest market data so they keep current with the market trends, even when those trends change. Our ELgos may not be able to expect when a tweet or global event might shake the market, but they can react quickly to those changing events. 


Sunday, 10 February 2019

ELgos: Trading by the Numbers

We have just finished the first few days of beta testing of ELgorithmics and the new website. Thanks to the great feedback we have received from our beta testers, we identified some issues with the website, how we deliver the ELgos to users, and how users install the ELgos and start trading. 

As we are getting closer to going live, let’s talk about the probabilities behind the ELgos. 

Our goal when we create an ELgo is to have the highest probability of making a profitable trade on the next trading session.

When we data mine as part of the creation of our ELgos, our mining criterion includes a number of important outcomes. The most important of these are:
Win rate is over 50%
Average win is greater than the average loss

Generally, the majority of profits come from a minority of trades. When the market makes a large vertical move, something that happens less often, we can get large profits per contract. This is why we look for average win being greater than average loss.

However, the issue with algorithmic trading is, and always has been, the ability of the trader to sit through draw downs. The question has always been: "Is this a draw down or is the algo broken". Algos always eventually degrade. What we have done with ELgorithmics is take away that disadvantage of degradation by producing a new algo every trading day and relying on the win rate and win to loss ratio for profitability.

When we produce an ELgo, we also produce a new historic profile that each ELgo is based on. On the website, we will be posting the historical profile and the related data, such as win rate and average win.
Let’s look at an example historical profile for Gold (GC). This is similar to what you will see on the website for each ELgo.

Looking at the above historical profile we can see that GC had a 64.18% win rate and a win/ loss ratio of 1.789. In simpler terms, the ELgo has over a 64% chance of being a winning trade and if it is a winning trade, it is likely the number would be nearly twice as large as a win compared to if it was a loss ($420 v -$240)

The math behind the ELgos lead us to expect that the statistics from the historical profile should apply for the next trading day and if that is the case, we have an edge for the next trading day. 

If our ELgorithmic process continues to deliver historical profiled ELgos of the same quality then we believe that our methodology over time should be profitable although we are mindful of the so called 80-20 rule: 80% of profits come from 20% of the trades. 

Please read all the disclaimers including past profitability is no guarantee of future results.

Monday, 28 January 2019

Thanks for All the Betas

Thanks guys, we had an overwhelming interest for our ElectronicLocal Tames the Beasts ELgo testing. Because of this we have closed the first because we have enough testers for the first round. The beta testers will be receiving an email in the next couple of days.

Wednesday, 23 January 2019

ELgo™ is Here!!

Finally, after years of work, ELgorithmic™ Trading is here. My ELgos™ are leaps further developed than my FloBot. Flo was good, especially for the technology of the time, but like most algorithms she degraded, sometimes very quickly, sometimes after quite a while.

Unlike Flo, ELgo™ is reborn every day. Each day I have a new fresh ELgo™. Not just reoptimized, but recreated from scratch. Each day, we data mine using several different processes and produce the most robust ELgo™ we can. But, our ELgo is designed to work for just one day. We throw it away the day after. No degradation!

The process of creating ELgo™ is where the magic is. Big Data and Data Scientist are the current buzz words in business now as companies have found that there is an immense amount of information hidden in large data sets. However, knowing how and what to data mine is both an art and a science, especially in the trading environment. Pete Steidlmayer, who helped us traders find value, used to say that traders were information processors. Traders now need to be data scientists, as that is where the value can be found. So to succeed, you need to learn to trade and then learn how to mine data! Quite a steep learning curve

That’s where ELgos™ come in. They help bypass that steep learning curve as neither trading knowledge nor data mining expertise is required.

Cutting to the chase, we are looking for a limited number of beta testers for our ELgos™. We know our ELgos™ work, however we need to ensure the end to end process of delivering those ELgos™ to users is seamless and timely. We’ll give you an extended free trial of the ELgos in exchange for helping us ensure the process is as smooth as we can make it.

We will support ELgos™ for MultiCharts, NinjaTrader 7, and TradeStation, so we are looking for people who have those platforms or want to get a free trial of MultiCharts or use the free SIM in NinjaTrader. 

You can also get a free two-week trial of a VPS if you want it.
What you get
         First access to information and the opportunity to use ELgos (free!) before anyone else.
         An extended beta free trial. You’ll also be eligible for the 2 week free trial all new customers receive once we go live. This mean a fresh ELgo™ every trading day.
         A two-week free trial of a VPS, highly recommended unless you have a bullet proof IT setup and are close to your broker’s servers
         A great learning experience with algorithmic trading
         The free opportunity to see if ELgo™ trading is for you
         To be the first what we believe will disrupt retail traders algorithmic trading
         A free opportunity to find a new stream of income without need to use up more than a few minutes a day of your time
         Access to a new website full of great information

What we get
         The bugs out of our new website
         The bugs out of getting a range of ELgos™ with varying periodicities and session times to you in a timely manner.
         A community of like-minded traders that will help us find more markets and session times for our ELgos™. This is another reason for making ELgos™ available to a wider group of people.
         The satisfaction of helping people get to CP

If you want to be a beta tester then please email us “electroniclocal at gmail dot com” with the details of which platform you will be using for your trial. Places are limited so first come first served and we will cut off when we have sufficient of each of the three platforms. If you have been selected as a Beta tester, we will email you with further details.

Thursday, 17 January 2019

Arise Sir Elgo

I've been reading about the death of John Bogle. He was a real hero for the retail investor and a major disruptor of his times. Not only did he create the first index fund, he founded the Vanguard Group and differentiated it by adopting an unusual corporate and operating structure, which meant lower fees and a focus on stakeholders. This resulted in the retail investor keeping more of his “winnings”. He changed the whole industry!

Of course, the industry keeps changing, especially as technology advances at a rapid pace. We seek to harness these advances to work towards our goal as traders - to create wealth – as easily as possible. This is why algorithms are becoming widespread.

It's been estimated that about 80% of the volume generated in the markets is now the result of automated algorithmic trading. Because algos are making money, large institutions have replaced traders sitting at trading desks with quants designing automated trading system that are not just responsible for the high frequency trading but trading decisions and execution in general.

While the day of the discretionary trader is not over, choosing to trade with algos greatly reduces the time it normally takes a person to go from zero to CP.
Up until a couple of years ago I wrongly believed that algorithmic trading had one drawback that meant it would never take off: it had a limit of what it could earn on the capital available. A competent discretionary trader could take $10,000 and turn it into $100,000 in a year. I wrongly believed that the cap on algo earnings was 140% a year. I have since put in more than the required 10,000 hours into investigating algos and now know that I can do many times that amount with the technology and techniques now available.

The last two years have been busy. My youngest daughter, Kiki, has been working with me to create a way to evolve our own trading and we have created ELgorithmics™. She is an IT technologist who has worked with some of the biggest institutions and the reason for this blog. While ELgorithmics™ (ELgos™ for short) was designed as a way to evolve our own trading, ElectronicLocal have decided to think big and be a disruptor.

Introducing ELgorithmic™ trading! 

We have decided to make what we develop available to people and, like John Bogle, we’re going to adopt an unusual corporate structure. Because we know we’ve got an amazing product, we’ve decided that you will never pay unless it has been profitable. And because EL has always tried to help other traders, we’re going to offer a free trial, no strings attached, no credit card required.

In the next days, we'll be writing more about the pros and cons of algo trading and what you can expect from our ELgos.

EL & Kiki