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Optimal number of algo models for a single instrument


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Optimal number of algo models for a single instrument

  #1 (permalink)
San Diego, USA
 
Experience: Intermediate
Platform: MC
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Posts: 48 since Aug 2016
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Optimal number of algo models for a single instrument

Hi all,

Is there an optimal number of strategies that one should trade per a single instrument? Clearly, some strategies are trend following, others mean reversion. But as you add more algos to a single instrument, it appears that they become more curve fitted overall and more impacted by the past noise, which is always a part of optimized model parameters (despite the fact that, as you increase algos count for a single instrument, you add algos that have negative correlation to other strategies).

So, is there a rule of thumb that performs best and has least past noise for the algos count for a single instrument, ie 2 trend following + 2 mean reversions, or smth like that?

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  #3 (permalink)
Gits (Hooglede) Belgium
 
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Try to make those strategies generic, so they work on 10 instruments.. and you'll fix some of the issues mentioned

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  #4 (permalink)
San Diego, USA
 
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rleplae View Post
Try to make those strategies generic, so they work on 10 instruments.. and you'll fix some of the issues mentioned

@rleplae - when you create a generic algo for a number of instruments, you still get some variations in the input parameters between them, right? (where you have say two parameters and and variations between these two parameters for different instruments is not that big). And how do you deal with that issue: still standardize parameters for all instruments or leave the best fit for each?

btw, would you know any good source for generic algos teach ins, like courses, books, etc?

Thank you.

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  #5 (permalink)
Gits (Hooglede) Belgium
 
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Broker: Ninjabrokerage/IQfeed + Synthetic datafeed
Trading: 6A, 6B, 6C, 6E, 6J, 6S, ES, NQ, YM, AEX, CL, NG, ZB, ZN, ZC, ZS, GC
 
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alko View Post
@rleplae - when you create a generic algo for a number of instruments, you still get some variations in the input parameters between them, right? (where you have say two parameters and and variations between these two parameters for different instruments is not that big). And how do you deal with that issue: still standardize parameters for all instruments or leave the best fit for each?

btw, would you know any good source for generic algos teach ins, like courses, books, etc?

Thank you.

I think two places you could look into is Kevin and his course on building an automated trading system
another person is Andre Unger. I just mention those names as i see them regularly and both persons
seem to talk 'no bullshit', but please do your own due diligence, you may find other sources

I have been working many years myself on building algo's. None of those algo's contain a 'magic'
optimization that makes or brakes the algo for that instrument. A magic optimazation is for example
: use EMA 17 and EMA 34 for CL and EMA 20 and EMA 46 for ES, that is just curve fiting and will not
work in the long run.. in my opinion

To give you an example, i have an algo that runs on 21 instruments. Each instrument has a few
different parameters, by the nature of the instrument (tick size, #contracts, roll-over), but that's very
much it... And i do trade more contracts on NQ than i do on ZB, due to the value per tick per contract,
NQ being 5$ and ZB 35$

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  #6 (permalink)
Monterey, CA
 
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RLP makes some good points, and Kevin's courses are always a good bet to learn more from a trusted and competent source. . . one point I wanted to add here, when dealing with the running of multiple algo's for a single instrument, is that to mitigate risk, you may want to consider not only having a balance of long/short directional strategies (if possible), but even more importantly balancing out the core-logic used within them.

What I mean by this is if you're running 10 strategies for Crude Oil, and they're all roughly of the same type (lets say trend following), you'll go through cycles of feast and famine, and huge profit spikes and drawdowns. . . an earnings roller-coaster that is not nearly as enjoyable as a roller coaster should be.

If you can figure out means and methods to create strategies making use of varied and counter-correlating means and methods, such as trend following paired with mean reversion, your equity graph will likely thank you for it, with a much more stable, consistent upward angle, as opposed to a chaotic mess.

The importance of lowering max drawdown and risk can't be overstating, when you're attempting to field several automated trading strategies simultaneously. A truly balanced and diversified portfolio allows you to scale up far higher with a great deal more confidence than the alternative.

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