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.



AlgorithmicTrading.net provides trading algorithms based on a computerized system, which is also available for use on a personal computer. All customers receive the same signals within any given algorithm package. All advice is impersonal and not tailored to any specific individual's unique situation. AlgorithmicTrading.net, and its principles, are not required to register with the NFA as a CTA and are publicly claiming this exemption. Information posted online or distributed through email has NOT been reviewed by any government agencies — this includes but is not limited to back-tested reports, statements and any other marketing materials. Carefully consider this prior to purchasing our algorithms. For more information on the exemption we are claiming, please visit the NFA website: http://www.nfa.futures.org/nfa-registration/cta/index.html. If you are in need of professional advice unique to your situation, please consult with a licensed broker/CTA.

DISCLAIMER: Commodity Futures Trading Commission Futures trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this website or on any reports. The past performance of any trading system or methodology is not necessarily indicative of future results.

Unless otherwise noted, all returns posted on this site and in our videos is considered Hypothetical Performance. HYPOTHETICAL PERFORMANCE RESULTS HAVE MANY INHERENT LIMITATIONS, SOME OF WHICH ARE DESCRIBED BELOW. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN. IN FACT, THERE ARE FREQUENTLY SHARP DIFFERENCES BETWEEN HYPOTHETICAL PERFORMANCE RESULTS AND THE ACTUAL RESULTS SUBSEQUENTLY ACHIEVED BY ANY PARTICULAR TRADING PROGRAM. ONE OF THE LIMITATIONS OF HYPOTHETICAL PERFORMANCE RESULTS IS THAT THEY ARE GENERALLY PREPARED WITH THE BENEFIT OF HINDSIGHT. IN ADDITION, HYPOTHETICAL TRADING DOES NOT INVOLVE FINANCIAL RISK, AND NO HYPOTHETICAL TRADING RECORD CAN COMPLETELY ACCOUNT FOR THE IMPACT OF FINANCIAL RISK IN ACTUAL TRADING. FOR EXAMPLE, THE ABILITY TO WITHSTAND LOSSES OR ADHERE TO A PARTICULAR TRADING PROGRAM IN SPITE OF TRADING LOSSES ARE MATERIAL POINTS WHICH CAN ALSO ADVERSELY AFFECT ACTUAL TRADING RESULTS. THERE ARE NUMEROUS OTHER FACTORS RELATED TO THE MARKETS IN GENERAL OR TO THE IMPLEMENTATION OF ANY SPECIFIC TRADING PROGRAM WHICH CANNOT BE FULLY ACCOUNTED FOR IN THE PREPARATION OF HYPOTHETICAL PERFORMANCE RESULTS AND ALL OF WHICH CAN ADVERSELY AFFECT ACTUAL TRADING RESULTS.

With the exception of the statements posted from live accounts on Tradestation and/or Gain Capital, all results, graphs and claims made on this website and in any video blogs and/or newsletter emails are from the result of back-testing our algorithms during the dates indicated. These results are not from live accounts trading our algorithms. They are from hypothetical accounts which have limitations (see CFTC RULE 4.14 below and Hypothetical performance disclaimer above). Actual results do vary given that simulated results could under — or over — compensate the impact of certain market factors. Furthermore, our algorithms use back-testing to generate trade lists and reports which does have the benefit of hind-sight. While back-tested results might have spectacular returns, once slippage, commission and licensing fees are taken into account, actual returns will vary. Posted maximum draw downs are measured on a closing month to closing month basis. Furthermore, they are based on back-tested data (refer to limitations of back-testing below). Actual draw downs could exceed these levels when traded on live accounts.

CFTC RULE 4.41 - Hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under — or over — compensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

Statements posted from our actual customers trading the algorithms (algos) include slippage and commission. Statements posted are not fully audited or verified and should be considered as customer testimonials. Individual results do vary. They are real statements from real people trading our algorithms on auto-pilot and as far as we know, do NOT include any discretionary trades. Tradelists posted on this site also include slippage and commission.

This strictly is for demonstration/educational purposes. AlgorithmicTrading.net does not make buy, sell or hold recommendations. Unique experiences and past performances do not guarantee future results. You should speak with your CTA or financial representative, broker dealer, or financial analyst to ensure that the software/strategy that you utilize is suitable for your investment profile before trading in a live brokerage account. All advice and/or suggestions given here are intended for running automated software in simulation mode only. Trading futures is not for everyone and does carry a high level of risk. AlgorithmicTrading.net, nor any of its principles, is NOT registered as an investment advisor. All advice given is impersonal and not tailored to any specific individual.

* Published percentage per month is based on back-tested results (see limitations on back-testing above) using the corresponding package. This includes reasonable slippage and commission. This does NOT include fees we charge for licensing the algorithms which varies based on account size. Refer to our license agreement for full risk disclosure.