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How to trade in your sleep By Carlos Vila

Good Morning

Everyone

Agenda

• A little about myself and limit poker

• Expected return in gambling and the AP

• “Q-calcing”

• Back Testing Methodology

• Max Drawdown

• The “Ideal” AP System

• Percentage Trading

• Money Management

• Moving to a Virtual Server

A little about myself

• Internet poker boom occurred while I was getting my Bachelors from MIT in Electrical Engineering and Computer Science



• Started playing online poker with “play money” and took a particular interest in the game of Limit Poker



• Started playing online poker with “play money” and took a particular interest in the game of Limit Poker

• After reading many poker books (I highly recommend author David Skalansky if you like poker) and a few months of practice I was playing multiple tables at the same time.

Limit Poker and

Poker Bots

Limit Poker Structured Betting

• The betting is structured such that players can only bet a set amount known as “the limit”



• There is no no “all in” which makes decisions easier



• There is no no “all in” which makes decisions easier

• When it is your turn to act, you only have three choices

– Check, Bet, or Fold (if no one has bet)

– Fold, Call ,or Raise (if someone has already bet)

Limit Poker or “No fold ‘em hold ‘em”

• “Bluffing” is virtually impossible in limit poker since you can only bet the limit and people will usually call you



• The limit is usually small compared to the pot size. For example, in a $1/$2 limit game, it may only cost you $2 to win a $30 pot on the river



• The limit is usually small compared to the pot size. For example, in a $1/$2 limit game, it may only cost you $2 to win a $30 pot on the river

• That’s why limit is known as “no fold ‘em hold ‘em”

Limit Poker Getting the Edge

• The game is deceptively simple



• Many (bad) players think the game is just the luck of the draw and not much skill.




• Skilled players understand the probabilities of the game and use odds to decide when to “hold em or fold em”




• Skilled players understand the probabilities of the game and use odds to decide when to “hold em or fold em”

• Very good players recognize when opponents are too tough and the game is not profitable

Poker bot

• After much practice, I was able to play the game in a very mechanical way following a set of rules at each decision point.

Poker bot


• This allowed me to pay less attention to what the individual players were doing and play more than one table at a time.

Poker bot


• This allowed me to pay less attention to what the individual players were doing and play more than one table at a time.

• It became my dream to design a “Poker Bot” that could play online poker automatically while I slept.

Poker bot

You can’t play poker online for money anymore, but……

My dream came true

The Autopilot

• It’s a bot that plays the markets and trades based solely on technical analysis

The Autopilot


• It never needs to eat or sleep or go to the bathroom

The Autopilot



• It doesn’t go “on tilt” if it’s having a bad day

The Autopilot



• It doesn’t go “on tilt” if it’s having a bad day

• It gets better with every update!

Upping the stakes

The Big difference between poker and the markets:

Upping the stakes


• In poker, when you move to a higher limit game, the opponents are tougher and make less mistakes which makes the game much more difficult to beat

Upping the stakes


• In poker, when you move to a higher limit game, the opponents are tougher and make less mistakes which makes the game much more difficult to beat

• A poker bot might make a better average rate per hour (or wage) at a $1/$2 level than at the $10/$20

Upping the stakes

• In the Futures and Forex markets (especially Forex), it makes no difference if you trade 1 contract or 100!

Upping the stakes

• In the Futures and Forex markets (especially Forex), it makes no difference if you trade 1 contract or 100!

• Your buy or sell won’t be large enough to “move” or change the markets

Upping the stakes

• This means that if a system works consistently, you can keep upping your bet!

Upping the stakes

• This means that if a system works consistently, you can keep upping your bet!

• This is knows as pyramiding, compounding, or percentage trading.

Where’s the catch?

The combinations of possible settings are

Ridiculously Huge

Many settings to chose from

• Which signal, or combination of signals, should you use to enter the markets?


• Which signal, or combination of signals, should you use to enter the markets?

• How should indicators be configured? BnB has three flavors: traditional, progressive and aggressive and each one of these has a sensitivity between 1 - 99


Should you enter with a

– market order

– limit order (range from 1 to infinity)

– stop order (range from 1 to infinity)


• What time frame?

1 min, 5 min, 15 min, 1 hour, daily charts




• Should I use the “Trend” setting? Which time frame should I use for trend?




• Should I use the “Trend” setting? Which time frame should I use for trend?

• How should I exit the market?

regular stop, trailing stops, jump stop, limits, exit on signals, etc.


As you can see, the amount of combinations is mind boggling. With the current system, It would take a person years or even decades to test out every possible market with every possible strategy


As you can see, the amount of combinations is mind boggling. With the current system, It would take a person years or even decades to test out every possible market with every possible strategy

Of course technology is speeding up – processors are getting faster, and computing power is getting cheaper.

How to deal with all the choices?

Focus on one idea at a time

Keep it simple, go with one idea and work on developing it slowly.



Test your initial idea on different time frames.



Test your initial idea on different time frames.

Sometimes a system that doesn’t work on a 15 min charts work amazingly well on a 1 hour chart


Don’t add complex or advanced features until you have a basic strategy down


Don’t add complex or advanced features until you have a basic strategy down

Add on more features such as jump stops, trailing stops, exit if profit less than, etc. to fine tune your system and lock in extra profits after the basic strategy looks good.

Expected Return

Coin Flip

Coin flip example

Let’s suppose I offer you a simple bet on a coin flip:

If Heads comes up, you win $2, if tails comes up, you lose $1

Coin flip example

Let’s suppose I offer you a simple bet on a coin flip:

If Heads comes up, you win $2, if tails comes up, you lose $1

Is this a good deal?

Coin flip example

Well, it seems pretty obvious this is a good deal for you. If we assume it is a fair coin, that is, heads is no more likely to come up than tails then….

Coin flip example

Well, it seems pretty obvious this is a good deal for you. If we assume it is a fair coin, that is, heads is no more likely to come up than tails then….

50 % of the time you will win $2

50% of the time you will lose $1

Coin flip example

So what is your Expected Return?

Coin flip example

So what is your Expected Return?

It Is the sum of the return of each outcome multiplied by the probability of that outcome happening.

Coin flip example

Expected Return:

0.5 * $2 + 0.5 * -$1

Coin flip example

Expected Return:

0.5 * $2 + 0.5 * -$1

$1 - $0.50

Coin flip example

Expected Return:

0.5 * $2 + 0.5 * -$1

$1 - $0.50

$0.50

Coin flip example

Expected Return:

0.5 * $2 + 0.5 * -$1

$1 - $0.50

$0.50

This means that on average, with every coin flip you can expect to win $0.50

Coin flip example

What if I confessed to you that I was cheating by using a biased coin that was heavier on one side than the other?

Coin flip example

What if I confessed to you that I was cheating by using a biased coin that was heavier on one side than the other?

Let’s say that this coin gives heads only 20% of the time and tails 80% of the time

Coin flip example



Coin flip example



Now what is your expected return?

Coin flip example

Expected return:

0.2 * $2 + 0.8 * -$1

Coin flip example

Expected return:

0.2 * $2 + 0.8 * -$1

$0.40 - $0.80

Coin flip example

Expected return:

0.2 * $2 + 0.8 * -$1

$0.40 - $0.80

- $0.40

Coin flip example

Expected return:

0.2 * $2 + 0.8 * -$1

$0.40 - $0.80

- $0.40

This means that on average, with every coin flip you can expect to lose $0.40

Expected Return

Insurance in Black Jack

Should you take insurance in Black Jack

In the game of Black Jack if the dealers is showing an Ace, he will ask you if you want insurance.



He will explain that this is a side bet that pays 2 to 1 if the dealer has a Black Jack.



He will explain that this is a side bet that pays 2 to 1 if the dealer has a Black Jack.

Should you take insurance?


Let’s start by looking at the possible outcomes.



How many ways can the dealer get black jack?



How many ways can the dealer get black jack?

How many ways will the dealer NOT get blackjack?


The suits of the cards don’t matter, only the ranks matter.



there are only four cards that can give the dealer blackjack:



there are only four cards that can give the dealer blackjack:

Ten Queen

Jack King


There are NINE cards that WON’T give the dealer blackjack:


There are NINE cards that WON’T give the dealer blackjack:

Ace Six

Two Seven

Three Eight

Four Nine

Five


What about the payout?

Insurance pays 2 to 1




Lets say you are betting $10





If the dealer has a BJ you will win $20





If the dealer has a BJ you will win $20

If he doesn’t have it you will lose $10


We know the possible outcomes and the payout for each outcome. We still need the probability of each outcome.


There are 13 ranks, ace through king



You will win 4 times out of 13 ≈ 31%



You will win 4 times out of 13 ≈ 31%

You will lose 9 times out of 13 ≈ 69%


We can now figure out our expected return:

0.31 * $20 + 0.69 * -$10



0.31 * $20 + 0.69 * -$10

$6.20 - $6.90



0.31 * $20 + 0.69 * -$10

$6.20 - $6.90

-$0.70



0.31 * $20 + 0.69 * -$10

$6.20 - $6.90

-$0.70

So for every $10 wagered on Insurance you can expect to lose $0.70


Now you know, mathematically, why insurance is a sucker bet!

(much like ALL other bets in a casino)

Expected Return and the

Autopilot

AP Expected Return

The Autopilot will automatically calculate the expected return of your AP system on the back test data you select.

AP Expected Return

The Autopilot will automatically calculate the expected return of your AP system on the back test data you select.

This expected return is given as a percentage in the autopilot statistics

AP Expected Return

Using the expected return in combination with other statistics such as volatility, win percentage, and repeated wins/losses are a great way to decide between two similar systems.

AP Expected Return

Keep in mind that the expected return is calculated on the “window” of data used for back testing

AP Expected Return

Keep in mind that the expected return is calculated on the “window” of data used for back testing

It is a great indicator for how well a system should work, however it is no guarantee that the system will continue to work well in the future.

AP Expected Return

The difference between expected return in games like BJ and Poker and the markets:

AP Expected Return


In BJ or poker the outcomes are discrete and probabilities of cards to come can be “easily” calculated

AP Expected Return


The markets are continuous and move in unpredictable ways.

AP Expected Return


The markets are continuous and move in unpredictable ways.

The only way to know the “absolute” ER would be to know all market movements past, present, and future

Q-calc

Q-calc

I remember a time before the q-calc button and the hours spent trying to optimize settings.

Q-calc


The q-calc button is and amazing feature that speeds up back testing tremendously

Q-calc


The q-calc button is and amazing feature that speeds up back testing tremendously

Save time by optimizing the q-calc button by setting the range

Q-calc

Adjust the q-calc range depending on what time frame you are trading

Q-calc


If you are trading on the minute charts, you probably aren’t looking for huge pip moves.

Q-calc


If you are trading on the minute charts, you probably aren’t looking for huge pip moves.

Set your stop and limit ranges to 10 - 100 pips

Q-calc

If you are trading on the daily charts set your stop and limit ranges much higher

Q-calc


For this time frame I like test from 50-500

Q-calc


For this time frame I like test from 50-500

After a few iterations, once you get a feel for a particular market, you can adjust the q-calc to a more appropriate range to speed up testing.

Global Q-calc

A note a about the global q-calc button:

Global Q-calc


Using this button is the same as q-calcing each individual setting from top to bottom.

Global Q-calc


Using this button is the same as q-calcing each individual setting from top to bottom.

This will not necessarily give you the best setting. For example, it may be better to q-calc the limit settings before q-calcing the indicator settings.

Global Q-calc

I don’t recommend using the global q-calc until you have you have individually q-calc’d each parameter.

Global Q-calc


Individually q-calcing gives you more control while developing an Autopilot system.

Global Q-calc


Individually q-calcing gives you more control while developing an Autopilot system.

While individually q-calcing, remember to adjust the ranges to suit the market/time frame you are using

Back testing Methodology


Instead of back testing current data and then running the AP forwards, try this:



• Back test a window of data at a time, lets say a month’s worth of data lets say Jan 1 through the 31




• Back test this data until you are satisfied with your AP system




• Back test this data until you are satisfied with your AP system

• Now see what the results are for the first week of February and write them down


• Next, move your back testing window to start on the 2nd week of Jan through the first week of February



• Again, q-calc the hell out of it until you are satisfied



• Again, q-calc the hell out of it until you are satisfied

• See what the results are for the 2nd week of February and write down the results


This is a great way to test a method for coming up with AP systems rather than just testing a single AP system



It’s as if you run the AP every week and re-q-calc every weekend!



It’s as if you run the AP every week and re-q-calc every weekend!

This may take a lot of time, but may potentially save you a lot of money.

Max draw down

Max drawdown

The max drawdown of an AP system is the “worst case “ in back testing data

Max drawdown


You have to go through the AP trades to find the max drawdown

Max drawdown


You have to go through the AP trades to find the max drawdown

Set the start time to just before the worst loss in a string of loses and watch the account balance

Max drawdown

The max drawdown of an AP system is very important when percentage trading

Max drawdown

The max drawdown of an AP system is very important when percentage trading

A string of losses can be devastating to your account balance, ESPECIALLY when percentage trading

Max drawdown

If you are running a system that has worst string of losses than anything you’ve seen in back testing STOP INMEDIATLY.

Max drawdown

If you are running a system that has worst string of losses than anything you’ve seen in back testing STOP INMEDIATLY.

Market conditions may have change and the system may no longer be valid

What does the ideal Autopilot

system look like?

An ideal AP system

• Average wins are much bigger than average losses

An ideal AP system


• A high Wins to Losses ratio

An ideal AP system



• Losing streaks are rare

An ideal AP system




• Makes a lot of trades

An ideal AP system





• Max Drawdown is smaller than average win

An ideal AP system





• Max Drawdown is smaller than average win

• System is consistent over all time

What is your goal?

You are trying to make a lot of money using the AP, you want a system that takes advantage of percentage trading and automatically leverages up the amount of contracts as your account grows.

Go BIG or go home!

Percentage

Trading

Percentage Trading

If you want to go BIG, you are going to need to leverage up your trading.

Percentage Trading


This involves taking on more risk

Percentage Trading


This involves taking on more risk

Controlling this risk is the key to success

Go BIG or Go Home

Nobody wants to go home, so how can you maximize your chances?

Go BIG or Go Home


Percentage trading makes your account much more susceptible to losses.

Go BIG or Go Home



Don’t over percentage trade.

Go BIG or Go Home



Don’t over percentage trade.

Give yourself enough trades to “pull the plug” in case things go south

Go BIG or Go Home

The amount you percentage trade should depend on:

Go BIG or Go Home


• The win/loss percentage of your system

Go BIG or Go Home



• How big your average losses are

Go BIG or Go Home



• How big your average losses are

• What was the max drawdown of losses in a row for your system

Go BIG or Go Home

Use back testing to get a feel for what your worst case would be.

Go BIG or Go Home


This can be done by setting the “start time” to where you see the worst string of loses.

Go BIG or Go Home


This can be done by setting the “start time” to where you see the worst string of loses.

Play with the initial account balance to get a feel for how percentage trading affects this string of loses.

Watch your back, Jack.

Watch your back

Remember that the past does not guarantee future results.

Watch your back


Back testing is almost like cheating: it’s like watching someone play a game of Black Jack and then telling them what the correct play was after the cards are dealt.

Watch your back


Back testing is almost like cheating: it’s like watching someone play a game of Black Jack and then telling them what the correct play was after the cards are dealt.

Hindsight is always 20/20

Watch your back

In a casino if you lose a bunch of money the pit boss will usually offer you some kind of comp such a free room, a meal or show tickets.

Watch your back


These markets have no problem taking all of your money, and won’t even say “thank you for your business”

Watch your back


These markets have no problem taking all of your money, and won’t even say “thank you for your business”

So watch your back, jack!

Money Management

Money Management

This is the number one rule of gambling:

Money Management


Never put more on the line than you are willing to lose.

Money Management


Never put more on the line than you are willing to lose.

If you set a limit for your loses, you exceed

that limit, and you keep playing, you may have a gambling problem.

Money Management

If a system wiped out your account, STOP TRADING!! Go back to using the demo account

Money Management


Regroup and try to figure out what went wrong:

Money Management


Regroup and try to figure out what went wrong:

• Did you over leverage?

• Did market conditions change?

• Did you under fund your account?

Moving your Platform to “The Cloud”

Why move to “The Cloud”?

You can run the Auto Pilot and not worry about:

• Power Outages

• Blue screen crashes

• Software update automatic resets

• Sharing your PC with family/friends

• Internet connection problems

• Natural Disasters


• You can log on to your Remote Desktop from virtually any PC with internet or your Smart Phone!

• Receive TXT Messages when the AP give a signal or enters/exits the market


• You can always “pull the plug” from your smart phone.

• Extra bonus: The cloud tends to be faster at q-calcing which speeds up the back testing process.

When to move to “The Cloud”?

• Don’t get a VPS if you are just starting.

– It cost money

– You should be paper trading


• Do get a VPS Once

– you have at least 6 months experience paper trading




– you are very comfortable with the autopilot




– you are very comfortable with the autopilot

– you have experience using a real money account

how to trade in your sleep - amazon s3 › lanturner › autopilot-bootcamp › ...how to trade in...

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