automated trade strategy by todd hanson phd

Building Your Own Building Your Own Automated Trade StrategyAutomated Trade Strategy

Todd Hanson Ph.D.www.livetradesignals.com

AgendaAgenda

• Interests in Automated Trading

• Building Your Own

• Automated Trade Signals

• Livetradesignals Trade Signal Software

Todd Hanson Ph.D. in the Todd Hanson Ph.D. in the NewsNews

Interest in Automated Interest in Automated TradingTrading

• Buyside– Competitive advantage

• Capitalize on opportunities before competitors

– Leveraging Traders’ skills• Scale each trader

– Easily add new ideas and strategies

• Sellside– Increase trading

volume– Attract & retain

customers

Automated StrategiesAutomated Strategies

• Automated Strategy – aka “Black Box”– All processes of the trade decision are done by pre-

programmed rules or parameters

• Most common way to auto trade FX– TradeStation Platform– MT4 Expert Advisors– NinjaTrader– Home grown (API and FIX)

Black Box StrategiesBlack Box Strategies

• Challenges of Automated trading– Field of untested (demo only) models is huge– Inconsistent reporting formats– Model performance transparency is limited– Novice traders focus on %ROR

• No attention on drawdown • No details on leverage used

– Finding a market tested model can be tough– The trade is the trade, no user intervention

Risks of CommoditizationRisks of Commoditization

• Black Box Strategies– If everyone has the same black boxes = cancels out

competitive advantage– Limited scope to use your skills – can only parameterize– Often there isn’t a module that offers exactly the

algorithm required– An algorithm may be tied to a particular broker– Can be expensive to employ

• Pressure to differentiate– Hard for buy-side to understand what makes one’s

strategies better than another’s– Models rarely explain how they differ– Buy-side users want to know “how it works”

• Build your own– Takes a large amount of time & effort (IT cycle)– Maintenance issues

• Markets are continually evolving– First mover gets the advantage– Lost opportunity cost of slow evolution

Build Your OwnBuild Your Own

• Articulate the model’s basis – Identify the underlying parameters

• Moving Averages, Bollinger Bands, ATR, etc.

– Create the argument the conditions “The IF”– Create the trigger “The THEN”– Add in Risk Management

• Scaling• Stop Loss• Profit Taking

Build Your OwnBuild Your Own

• Back-test and re-tool– Focus on the trigger

• Back-test and re-tool– Focus on the exit

• Only then walk-forward test» Data fitting begins after 2 minor changes of the

underlying parameters» Don’t curve fit your model to fit the data

Build Your OwnBuild Your Own

Algorithmic WarAlgorithmic War

• Algorithms need to continually evolve– Review of expected vs. actual performance – Competing with other algorithms over current

opportunities– New opportunities emerging– Avoid being reverse engineered– Opportunities may disappear

• Evolve or perish!

Ideas for New StrategiesIdeas for New Strategies

• Interest is growing for algorithmic trading in multiple asset classes– Equities, Futures, Forex, Bonds– Trading and Market-making (e.g. bond pricing)

• Employ strategies from other asset classes– Example:

• Trend strategy in equities may work in FX– Minor parameter changes to a specific market may

spawn a new opportunity

• Correlations between asset classes do exist– S&P 500 and EURJPY correlation is high at times, seize the

opportunity for playing the lagging one “Pairs Trade”

Automated Trade SignalsAutomated Trade Signals

• Automated Trade Signals – aka “Grey Box”– All information and computation done by system– Trader’s discretion whether to trade or not– Adds more views on the market– Models scan more than a human ever could– Employ strategies outside trader’s toolkit– Flexibility in trader’s schedule

A carpenter does not have just 1 hammer or 1 wood saw,why should a trader have just 1 strategy?

Automated Trade Signals Automated Trade Signals

• 24 hour trade signal service• 6 Pairs available• 5 Strategies available(Trend, CounterTrend, Scalping, Momentum)

• Web based, Java and Email/SMS enabled client interfaces• Visual and audible alerts in multiple formats

• Trading Grid • Interactive Chart• Email / SMS

• Fully disclosed performance by currency pair and by individual strategy in real-time

LTS Java TraderLTS Java Trader

All of the automated trade alerts work with iPhones or other browser capable phones or internet devices. You can also choose to be alerted to new signals via email or text message.

Trade Signals on the GoTrade Signals on the Go

Trader ToolsTrader Tools

Full Help Files Built InFull Help Files Built In

We will be continuing to host free seminars We will be continuing to host free seminars on Livetradesignals Product Suite. Please on Livetradesignals Product Suite. Please

sign up at our websitesign up at our website

www.livetradesignals.com

info@livetradesignals.com