Monday, September 04, 2006

Public domain systems

One of my favourite back testing software I like to use is Wealth Lab developer. Theres a very active scripting forum with this software and a great deal of information sharing. Great stuff for the up coming Algo or Tech trader.

Also found this link when looking for pyramiding systems. Havent looked at it in depth yet but the 1985-2003 back test on some futures markets turned $2k to $6mill...

Computerised Trading

Maximising Day Trading and Overnight profits (Mark Jurik)

Highly recommend this book on computerized trading. I guess this is what kicked it all off for me over the past year and a half. This book is the one that started my curiosity. Joe DiNapoli is a key contributor to the book, and this wont be the last time I mention this characters name in my blog. Meister of trading. Period.

Also just noted this book on "Technical Analysis in the Options Market: The Effective Use of Computerized Trading Systems". Cannot believe that I have never read this book and yet it outline ALL the key parts of my system document:
C1 - Psychology, Chapter 2 - Trend spotting Chapter 3 - MACD, Chapter 4 - Short Term Oscillators Chapter 5 - FTSE pyramiding. Chapters 1-4 are uncanniliy similar to what I have deduced about Binary Options inside my own Binary F2358B Binary Power method.

But there are 2 KEY differences.
1) The book looks like it has a section on FTSE Pyramiding, my system does not document my entry and management technique explicitly, only through example (implicitly). I think I need to read this book because it contains an insight into what I am currently being challenged with: Objectively and non-Judgmentally revising my entry method (pyramiding) or what I refered to as a reverse trailing stop "trailing entry" to my pal in the Bahamas, Pete.

2) The second difference is that my system ALSO utilises a VERY powerful leading indicator.

See this book here.

Binary bets - index options on steroids

Had an interesting chat to an online pal of mine who lives in the Bahamas, trading when he can as he resists retirement. We spoke about 911 and the effect it had on global markets, not least the impact it had on regulating the spoos and other index options he was making a killing on before 911. Spread betting firms binary bets are filling this gap right now, they are like "index options on steroids" in his words.. I was walking him through a couple of setups today on the F2358 Binary Power method.

911 - remembered

911 is at the forefront of my mind this year.

U.K.'s Armitage pens epic 9/11 poem
LONDON, Sept. 3 (UPI) -- British poet Simon Armitage wrote a tearjerker for the anniversary of Sept. 11, 2001, making him a top contender to become Britain's poet laureate.

The Sunday Times of London said the poem features a fictional British trader who is trapped in one of the World Trade Center twin towers as the hijacked planes strike. It will be read by Rufus Sewell, star of "Rock 'n' Roll," Sir Tom Stoppard's hit West End play, on Sept. 11.

"I wanted to do something which was both commemorative and elegiac, but not political," Armitage told The Times.

Sewell will read the poem, titled "Out of the Blue," against a backdrop of a stock trader's office and actual footage of the horrific day. Memories from victims' families will also be featured.

The poem begins with the trader embarking on what he thinks will be another ordinary day: "Up with the lark, downtown New York. The sidewalks, the blocks. Walk. Don't Walk. Walk. Don't Walk."

When the doomed trader realizes there is no hope of his survival, the poem continues: "Do you see me, my love. I am flagging. Flagging."

Britain's next poet laureate will be announced in 2008.

Sunday, September 03, 2006

Interview with a US program trader.

Find the whole interview here, but adding to my provious post about what algorithmic trading is, this is a useful post.

See the whole interview here.

Dave: First, can you please tell us exactly what program trading is and how it moves the markets?

Hank: That's a good question and there are really different answers and definitions depending on who you ask. Probably the best known definition is from the New York Stock Exchange. The NYSE says that any time a member firm executes a trade in 15 or more stocks simultaneously that are worth more than a million dollars, this "simultaneous trade" is to be defined as a program trade. Also that NYSE member firm that did that simultaneous trade must report that trade to the exchange. That is how the NYSE knows that program trading is now over half of the volume.

For us, however, a program trade is one that encompasses the PREM with a predetermined execution level either as a buy trigger or a sell trigger. Whether we trade only one stock, or 15 or more stocks, during the time that PREM execution level is hit, is not as important to us as the actual PREM execution level being hit in the first place. That pattern of PREM execution levels hitting on certain days and at certain times is the key to program trading for us and our clients. And it is not just for plain vanilla index arbitrage, either. The PREM is the key for almost all program trading.

Others define program trading as the purchase or sale of a large number of stocks contained in or comprising a portfolio. Sometimes you will hear clerks on the NYSE say that a sell program or a buy program is being done on the floor. But this type of portfolio change, typically done by mutual funds, is not as important for us or our clients. If the PREM is not moving, then we do not consider it a true program trade.

Dave: How did program trading first come about? What is its origin?

Hank: We knew that index arbitrage, a type of program trading, would occur even before the S&P Futures contract ever started trading in 1982. The concept of a futures contract trading above or at a premium to the actual price of the underlying cash commodity was well known at that time. We knew that the S&P futures would trade at a premium to the underlying stocks in the S&P cash index, and that sometimes that premium or PREM could get way out of much so that we could sell the futures contract and buy the stocks in that index as the same time and make a profit on the difference in prices. Once the S&P Futures contract began trading, we began plotting the PREM in real time and could instantly see whenever that PREM did move a lot and got way out of line. When it did, we could instantly see the results of that buy or sell program as the Dow Jones moved quite a few points in only 5 or 6 minutes. We have continued to track the PREM tick by tick since 1982.

Saturday, September 02, 2006

Algorithmic Trading

This is the start of my new journey as an algo trader. I've worked a s a technical consultant for a number of consultancies like Accenture, Sapient and IBM over the years and have specialised in data warehousing but always had a strong interest in trading, especially applying technical analysis. So before a new family comes along and knowing how hard it is to make it as a trader I thought now would be the best time to cross the line before my wife and I start a family.
What is algorithmic trading ? In my own words, I believe algorithmic trading to be the application of computer algorithms to fully automate a trading strategy. This not only includes generating buy/sell signals but also risk and money management, stop loss calculation and exit strategies. Obviously, given the range of assets that can now be exchange traded, the amount of data generated by these exchanges there is massive scope for unleashing a creative, artisitic system design comined with knowledge of programming languages like C, C++, VBA, Java... etc. When you consider its also possible to create Perl based text processing systems for heuristic textual recognition, its also possible to incorporate fundemental analysis into a trading strategy. Algorithmic trading to me is the natural progression for the technical trader who incorporates technical analysis into their trading using for example, Excel spread sheets (at is most basic level) to analyse price action and generate buy/sell signals and order generation.
Algo trading as a profession incorporates many of the features of enterprise systems design. There is the high level analysis, requirements definition, programming of the system into modules and then back testing. Back testing is the process of running the trading system through a set of data and analysing the profitability.
How did Algo trading come about? With the increases in efficiency offerred by todays enterprise computing systems and increases in regulatory intervention, algorithmic trading is currently outpacing more traditional forms of trading in terms of actual growth, according to the July Issue of Automated Trader magazine (July 2006).

Some Algorithmic trading links: Wikipedias entry