Better System Trader

Comments

1. Jan

   January 11, 2016 at 4:52 am

   What program do you use to backtest your ideas?

   • Michael Cook

     January 11, 2016 at 11:25 am

     Hi Jan
     I mainly use Genesis Trade Navigator Platinum as a testing platform, although I do also use Tradestation sometimes. I also end up reverting to good old Microsoft Excel on occasion, where whatever being tested just isn’t suited to a testing engine e.g. statistical based testing.

2. Django

   January 11, 2016 at 8:45 pm

   what would this type of a trader be regarded as considering the person uses algorithms for trade execution & at the same time applies discretion to apply those algorithms or perhaps better way of saying it would be having discretion on directionality & pretty much coding the algorithm to execute that discretion (directional bias) objectively in & out on its own during the course of trading session.
   Thanks

   • Andrew Swanscott

     January 12, 2016 at 8:25 pm

     Hey Django, Michael would still be classed as an algorithmic trader.

     The impression I got was that he only uses discretion to override his algorithmic trading in very special situations, the majority of the time it all runs automatically.

     Cheers,
     Andrew.

3. Ed

   January 13, 2016 at 11:39 am

   Hi Michael,
   Do you know any brokers that allow individual Australian residents to trade options and futures? There seems to be a glut in the market. The only one I can find is IB and you need to be a company to trade leverage.

   Thanks for the great interview.
   Ed,

   • Michael Cook

     January 13, 2016 at 1:13 pm

     Hi Ed
     I am not really familiar with the brokers as I had all my existing relationships in place already, so I cant recommend anyone. IB would be the obvious people to try, maybe also Straits. Or go direct to the US brokers and see if they will take you as an Australian resident. Hope this helps a little!

4. Tim

   January 28, 2016 at 9:26 pm

   Many interesting ideas in this podcast, but the one that sticks in my head is something like, “The biggest problem with the market is that it thinks recent history is an indicator of the near term future.” (My apologies for paraphrasing.) One might think that day and swing trades depend on recent history indicating near term future, but I suspect that’s missing the point. Please amplify a bit and tell us more about what you’re thinking.

   • Michael Cook

     January 29, 2016 at 10:55 am

     Tim
     Interesting that you picked up on that comment, it is one of my particular obsessions.

     The point I was trying to make is that basing bank or fund risk systems such as VaR, EaR models and the like on recent history is asking for trouble as often markets change very rapidly and those models implicitly assume that recent past activity IS a good indicator of the near future. That applies to past volatility, past price action and past correlations such as used in Gaussian copula etc.

     So VaR, EaR and similar models are like an option trader who prices trades using historical, rather than implied volatility. Such a trader would be unusual in the extreme.

     As traders with relatively low time horizons such as hours or days or low numbers of weeks, there are fundamental differences for us, most notably:
     1) The recent history we use can be for the purpose of specifically predicting change rather than continuation. For example, abnormally low volatility is a better indicator of an imminent increase in volatility than a continuation.
     2) Even when we do assume the past to be a good indicator of the future, we always have a stop loss in place i.e. we have the expectation that a very significant percentage of the time, we will be wrong – our performance comes from designing systems or managing trades in such a way that winners more than pay for losers.

     • Alex

       February 2, 2016 at 11:21 pm

       Hi Michael,
       When you have a system what is the easiest way to have it coded and linked with broker?

       I heard X Trader might be a easier way for a non coder like myself.

       What do you do when you have your strategy, how do you make it and link it to your broker?

       The other important thing is how do you protect it so know one sees your strategy?

       Kind regards,
       Alex
       UK

       • Michael Cook

         February 3, 2016 at 12:05 pm

         Hi Alex
         Well I tend to use Genesis Trade Navigator as I would describe myself as you have described yourself, i.e. a non coder and that is the package that I believe is simplest for getting a strategy programmed in. I also use this package for live trading, I just upload my systems onto their remote servers and off we go.

         I am afraid I am not familiar with the TT platforms such as X-Trader. I know they are widely used, including in the institutional space, so assume they must be pretty robust, although I couldn’t confirm that myself.

         I do know of plenty people who prefer other packages that can do the same as Genesis, notably Tradestation, Multicharts, Ninja etc. It is all a matter of taste and Tradestation is certainly more widely used than Navigator.

         The actual physical trading of an algorithmic system can either be direct (such as Tradestation that is essentially a testing engine as well as the firm being an FCM), or via a ‘bridge’ that connects your strategy package to an actual broker. I am guessing that the most popular bridge would be CQG and that happens to be the one I use. I rarely have problems with that set up.

         As to the question of protecting your IP, both Genesis and Tradestation offer the facility to ‘lock’ code so that it is password protected and I assume most other development packages offer something similar. I would make two comments about that though. Firstly I would never assume that such protection was full proof from hacking. Secondly, I wouldn’t care! – remember the comment in Market Wizards by Richard Dennis, or one of the other Turtles with a proven successful strategy – something like ‘I could publish the rules on the front page of the Wall Street Journal and still no-one would follow them!’

         • Alex

           February 4, 2016 at 12:08 am

           Thanks for the quick reply on here.

           Emailed you Michael, cheers Alex