Tuesday, 16 January 2018

An Algo Creation in Progress

To create an algo, I reverse engineer it to get the results profile I want. The results below show an algo for the DAX that trades 3 minute bars but can only enter during the first 2 hours of the session. I have identified this time as one that has opportunities. I then looked at the metrics of the results I wanted. This is how far I have gotten so far. There are 3 years of data in the results.

The next step can be to just do a Monte Carlo analysis to test for robustness as well as to test the algo with different periodicity data. Or, I can add rules to reduce risk or drawdown by eyeballing a chart. The risk is curve fitting. I rather accept risk than do anything that curve fits. My goal is to ensure robustness and there are a number of things that can be done to check for robustness.

I've been getting quite a few emails regarding algos. People are beginning to understand that algo trading is a lot easier than discretionary trading for most people because instead of the decision making process using discretion, you are using a tested algorithm whose past results you know and which give you expectations (but not a guarantee) of future possible profitability. See the disclaimer. Adding a number of algos into a portfolio is designed to further add robustness and smooth out the equity curve.

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