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Key Advantage of an Autotrade System - Ability to Portfolio
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Key Advantage of an Autotrade System - Ability to Portfolio

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Key Advantage of an Autotrade System - Ability to Portfolio

Any one else run your AT like a portfolio? My system trades 6 markets with a variety of signals. I could never keep up with that many in a manual environment. I find being able to run a portfolio is really a key part and essential part of my system as a trader. It really smoothes out equity curve and controls draw down. Also really helps if a few markets are choppy or starting to change to have everything counter balanced.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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liquidcci View Post
Any one else run your AT like a portfolio? My system trades 6 markets with a variety of signals. I could never keep up with that many in a manual environment. I find being able to run a portfolio is really a key part and essential part of my system as a trader. It really smoothes out equity curve and controls draw down. Also really helps if a few markets are choppy or starting to change to have everything counter balanced.

Absolutely, I've said before the holy grail is portfolio trading.

I have a thread on my own ambitions in this area here (algorithmic portfolio trading):

https://futures.io/elite-automated-trading/29764-big-mike-s-custom-trading-platform.html

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Absolutely, I've said before the holy grail is portfolio trading.

I have a thread on my own ambitions in this area here (algorithmic portfolio trading):

https://futures.io/elite-automated-trading/29764-big-mike-s-custom-trading-platform.html

Mike

Agree @Big Mike it really is as close to the grail as will ever get trading.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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yea but sucks for a non programmer>tackling this now..ugh

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This is pretty critical part of trading, either discretionary or automated. The benefits of diversification are to good to pass up. It is not auto trade specific, however the automated systems allow for much better scalability. Especially if you are a one man show. I think the biggest thing here that people are missing out on is the absolute focus on day trading or scalping type strategies. Diversification can come in many forms different instruments, global market places, Strategy type, time frame, etc..

To be honest almost every algo trader should be looking at portfolio level strategies. Strategies that are profitable on multiple markets are more robust. They give you the ability to scale out to multiple markets with very little to no changes in code. And its all for the same research and development time as creating a single strategy.

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treydog999 View Post
This is pretty critical part of trading, either discretionary or automated. The benefits of diversification are to good to pass up. It is not auto trade specific, however the automated systems allow for much better scalability. Especially if you are a one man show. I think the biggest thing here that people are missing out on is the absolute focus on day trading or scalping type strategies. Diversification can come in many forms different instruments, global market places, Strategy type, time frame, etc..

To be honest almost every algo trader should be looking at portfolio level strategies. Strategies that are profitable on multiple markets are more robust. They give you the ability to scale out to multiple markets with very little to no changes in code. And its all for the same research and development time as creating a single strategy.

@treydog999 very true. It would actually be impossible at level I am doing it at without automating since like you mentioned "I am a one man show". I agree 100% every trader should find ways to adjust into portfolio level strategies.

"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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@treydog999 very true. It would actually be impossible at level I am doing it at without automating since like you mentioned "I am a one man show". I agree 100% every trader should find ways to adjust into portfolio level strategies.

Now that you have entered into automated portfolio trading. I think it opens up a whole new world of possibilities as well as need for education for managing portfolios. For the most part I focus on the portfolio level as opposed to the individual strategy level of development. It is kind of like intraday scalpers who are stuck refining their entries and exits, same with algo traders who are consonantly tweaking single strategies.

Simple and Robust strategies traded across a variety of markets is much more rewarding than some people believe. It is also the same amount of work. This puts you in a more maneuverable position, because now you can actually mediate your risk. With an individual strategy you have to accept its back tested risk profile or don't trade it. At the portfolio level, diversification, asset allocation, and model selection can all increase or decrease your equity curve volatility, and shift your risk reward profile. Things that are not possible at the individual systems level.

Not that it is on a lot of peoples to do lists, but after you reached that point. Managing OPM is probably a very good option. Similar amounts of work for the systems R&D, except added admin work. Depending on either managed accounts or going Hedge fund style will affect your paperwork and regulation. But usually portfolio level strategies have higher capacity, so you can take advantage of that. Most individual algo traders will not have the capital to make a truly diversified investment universe out of pocket alone. Then you can also expand your investment universe, so instead of an individual diversified over 5-10 markets. You can go to 25-50 markets and still maintain capacity, increase your diversification and increase your risk adjusted returns. Not to mention making management and performance fees off the top.

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Great Thread

Thanks to you guys for a great thread on Portfolio Automation.

Leaving out the VPN/Hosting/Server/Proximiy side of things, what suggestions or considerations would you guys make to those who are transitioning from discretionary trading into Automated Portfolio Trading?

What are some things that a newcomer may not have thought about or problems and you had to tackle quickly in the learning curve in order to survive?

I'd really love to see more of this thread, thanks in advance!

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HectorPriamedes View Post
Thanks to you guys for a great thread on Portfolio Automation.

Leaving out the VPN/Hosting/Server/Proximiy side of things, what suggestions or considerations would you guys make to those who are transitioning from discretionary trading into Automated Portfolio Trading?

What are some things that a newcomer may not have thought about or problems and you had to tackle quickly in the learning curve in order to survive?

I'd really love to see more of this thread, thanks in advance!

Well i suggest you learn how to make profitable algorithms first. Creating a repeatable production process that keeps a lot of the common pitfalls in check. For example data contamination, look ahead bias, curve fitting , over optimization etc... @kevinkdog Kevin daveys webinars on here are a great resource to start with. It will eventually become your own process but every good production process keeps these things in check. Also you should have a constant maintenance and observation of live strategies. All strategies have a life cycle, you need to either continue to improve them to extend their life cycle or find a way to decrease allocation (in some cases to 0 eg turning them off) if they start to under perform. This identification of under performance should be all rules based and monitored after every day/trade. As well as codified responses to the confirmation of under performance.

I think that starting with single instrument strategies at first and making them profitable live would be a first step. Some people dive right into doing portfolio level strategies and I think it adds additional complexity that is not needed especially when you are rolling out your first or second strategy to real money. There is enough going on just making sure everything is running smoothly without worrying about the 5 or 10 additional instruments that you are also running the same or similar strategy on.

When I am talking about portfolio level strategy I am talking about 1 strategy that can be replicated with no or minor adjustments to trade across multiple instruments and or time frames. However we also need to consider portfolio management strategy. This is a more complex issue as you start to build a stable of multiple strategies running simultaneously. This becomes more like running your own tiny fund than it is like just being a normal "trader".

Portfolio management becomes about resource allocations and optimizing risk reward ratio. I do not mean the 3:1 risk reward ratio for a trade. Something that is commonly thought of for a single system or discretionary trader. I am talking about maximizing risk adjusted returns. So determining how much reward or potential reward I can gain for any single unit of risk.

Maximizing the risk adjusted returns and equity curve of the entire fund comes down to strategy selection and asset allocation. At this point its resource management, you only have a certain amount of capital you can allocate as well as time/hardware to manage the systems. Increasing the diversity of your strategies and equity curves is were you get the most bang for your buck. Mixing uncorrelated instruments, strategies, and time frames will give you a good mix in which to allot your capital to. At this point everything inside your stable should be profitable, its just a matter of doing the portfolio management to decrease your total equity curve volatility and increase your R^2.

There are several ways to do this, you can look at portfolio management text books. I recommend Grinold and Kahn's textbook Active Portfolio Management, honestly this book belongs in every serious algo portfolio traders library IMHO. However you can look at simpler models like equal weighting, fixed fraction,Kelly or half kelly, volatility adjusted notional, etc. Also you can build portfolio management/ asset allocation models just like you would a single system. So it can be as complex or as simple as you like. Honestly doing simple equal weighting is a good place to start, as it is the benchmark to which all other asset allocation strategies are compared against.

This is just scratching the surface. There is always more to learn and more to play with. Making models and building strategies should get your inquisitive juices flowing. I know I enjoy it a lot, that helps as it can become mundane, frustrating, and stressful. I can not stress enough that this is hard work, just as hard as anything else i suppose.

Good Luck on your journey

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