Friday, 13 May 2011

Reuters Hot off the Press

Blogspot was down for quite a few hours today and I couldn't upload. Was it self inflicted error or was it outside interference? I don't know but it shows that even Google is not immune to IT glitches. Our technology is evolving but is still far from seamless.

Someone sent me an interesting article:

It talks about the success of algo trading versus the discretionary trading of floor and other traders. I have written in the past that we, electronic traders, have now got the advantage but we must understand what those advantages are and how to exploit them.

I am now firmly of the view that using an algo to enter my trades gives me an extra edge on top of my existing edge. I can enter more consistently, faster, and accurately than by just a pick and click.

One of the advantages of algo trading is the ability to trade very short term and many, many times a day. Why is this an advantage? Well, I think it's easier to see the very short term effects of order flow and trade that. This means that if I go for small target many times a day, my high win rate and tight stops will make me money more consistently.

I'm posting two charts today - Crude and the Euro. You can see the way that Flo eats the trend, trading in the direction of the trend, taking a small profit and then putting the trade back on when there is a pullback.

The effect of this is a high win rate and profits. The concept is very simple which I think is a requirement for any trading methodology.


  1. Hello Boss,

    I know that you will change the size of your range bars to fit conditions, but what are your thoughts on changing the EMA?

    Lately in the ES the rotation have been shallower and it does not come back to the 33. Today is a good example on how the 21 period comes to play. As a matter of fact, it seems
    to be that way lately.

    Do you think that is just curve fitting even if your plan was to play the pullbacks in the trend on a SPECIFIC instrument?



  2. Sir, You have me ocnvinced of the efficacy of algo trading but the expertise needed to program my computer seems daunting. I understand your daughter helped you with this project. So my guess is that I would need to hire a programer to set this up. Of course I recognize the need to be consistently profitable first before this is done. I am just looking to the future. Thank you.

  3. Rino, the 33 and 99 are written in stone for me as the relationship between them is important too. The fact that the pullbacks don't reach the 33 is a sign of the trend and volatility. If you look at the VWAP and the 33 you'll see that they are similar too.

  4. Gary, you can use one of the psuedo languages and tech yourself. MarketDelta has RTL and MultiCharts has Easylanguage. The learning curve is no so steep for these.

  5. Hi EL,
    The BIGGEST problem with algo/HFT computer trading, is that it needs to constantly evolve. If not the other algo traders/programmers will get wind of it & eat you up!! ie. say i'm goldman sachs, I know there is algo trading program out there that buy at a 4 tick move, I'll buy heavy at 3 ticks & sell on the fourth,cause i know I got buyers coming in at 4 ticks. A very simple example, but hopefully you get my point! Big problem with computer programs, as soon as we know what they will do, we can beat them at their own game!! ZX12

  6. In these examples are you using a fixed profit target or is it based on other factors (like CCI?). Also with the algos are do you trade only in the direction of the range extension? How do you know when to turn them on and off?

    Thank you

  7. Why is the CCI now at 135 vs. 45 on the Euro?

  8. Wes, I hybrid trade which means that I start with optimised stop and targets but move them after the trade has been triggered in accordance with context. I keep the high win rate and make more profit.
    Anon 00:59, There is a dynamics between the range bars and the trend and I can triple the CCI to get rid of chop and still define the trend. Flo is a tool to use to trigger high win rate trades that i can then manage. I turn her off when I see chop or I leave her on auto when I can't watch the market closely.

  9. Hello Boss,

    I discovered that in TS you can have it show were the top and bottom of the range bar is
    in the Price Axis.

    Insert Analysis Techniques then Custom 2 Lines.

    Thank you,