A Robust Design Methodology
Our design methodology begins with an idea that is coded, analyzed, back-tested, optimized and then undergoes walk forward analysis (WFA). This lengthy process is only the beginning. Any strategy which passes these initial steps are further analyzed to determine their hero & villain states. Multiple trading strategies will be combined to form a complete Trading System such as our Wave Trader, Swing Trader, S&P Crusher or Pro Trader. As you review our algorithmic trading strategy, please consider the risks involved prior to utilizing our algorithmic trading strategies. Trading futures & options is carries significant risk of loss and is not appropriate to all investors.
Phase 1: Trading Strategy Design Methodology
Every trading system must begin with an individual trading strategy. A trading strategy or trading algorithm is a step by step set of instructions used to define the exact entry and exits. It consists of an idea which is then coded, analyzed, back-tested, optimized and run through a walk-forward analysis, prior to going live. This process can take multiple months to complete, but the final result should be a robust trading algorithm that can be considered for use with one of the existing Trading Systems or possibly be the genesis for a brand new system.
This video, presented by our lead developer – covers in great detail the process we use to develop an individual trading strategy or trading algorithm.
Phase 2: Combining Trading Strategies to Form a Complete Trading System
This video, presented by our lead developer – covers in great detail the process we use to form a robust Trading System consisting of multiple uncorrelated Trading Algorithms.
The second phase of our design methodology consists of combining individual trading algorithms to form a complete Trading System. This process requires us to first acknowledge that it is impossible to predict the markets near term direction with 100% certainty. What we do know is that the market on a month to month basis, will close either strongly up, strongly down or somewhere in between (sideways market). It is our opinion, that the most robust algorithmic trading systemis one which trades multiple uncorrelated algorithms, each of which targets a specific market condition. This kind of methodology is only viable, if in the contrary market conditions – the algorithms have either small gains or small losses. Therefore, the primary goal of our R&D efforts are to minimize losses during the contrary (villain) market conditions.
Is This Trading Strategy Perfect?
It is the opinion of AlgorithmicTrading.net, that no holy grail of trading exists and that there is no such things as a perfect trading strategy. All strategies have flaws and until someone designs a crystal ball – there will be stress & emotions involved with trading. With that said, it is our experience that this kind of trading methodology – grounded in actual quantitative analysis (not talking heads or loud trading rooms), provides a sense of emotional relief when it comes to active trading.
As all traders know, trading is very difficult and emotions can cause us all to do irrational things. Our experience is that some of the most stressful trades are ones that go well. Its human nature to want to lock in profits – but traders are all to familiar with getting out too early and watching the market continue higher. They jump back in, wanting to capture more gains only to see the market reverse. They hold onto the loser way too long and end up taking a larger loss than anticipated after moving their stops. This process repeats itself and is one reason why many day traders fail.
While our methodology is not perfect – we do take losing trades, losing months and even losing quarters, by trading multiple strategies we minimize a certain type of fear that most traders face, namely the fear of “getting the market direction” wrong. The data does show us that even with our trading methodology, the market can go higher and the best performing “bull market” trading strategy we have (Momentum ES Trading Strategy) can still take losses during its Hero Market State.
As mentioned repeatedly, trading futures and options is not for everyone. You should only trade with Risk Capital. If you are in doubt, discuss our algorithmic trading strategies with a registered CTA or Investment Advisor. As a third party trading system developer, we are not registered with the NFA as Commodity Trading Advisors (claim the self-execution exemption from registration) and can not provide investment advice unique to your personal situation.