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A Quant's perspective on building a trading system.
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A Quant's perspective on building a trading system.

  #1 (permalink)
Spread Trader
Austin TX
 
Futures Experience: Advanced
Platform: Ninjatrader, Python, & R
Broker/Data: RJO
Favorite Futures: Futures, Spreads
 
SodyTexas's Avatar
 
Posts: 313 since Sep 2013
Thanks: 96 given, 843 received

A Quant's perspective on building a trading system.

This is my second attempt to a journal. My first one failed (because we just had a new baby that took up all my time). I hope you are understanding for the failed attempt and follow me along with this one. I have the time and motivation to see this one through.

My goal of this trading journal is to showcase how I a quantitative trader approaches the development of a trade system. I trade professionally (for a hedge fund) and am looking to possibly go out on my own or trade with another firm. That said, if you are interested in my methods feel free to contact me.

I find futures.io (formerly BMT) as a perfect place to start my journey because of the fantastic audience that only futures.io (formerly BMT) can supply. I encourage an open debate on my methods because I recognize that I do not have all the answers and can learn from other members on this forum.

I will be presenting the steps that I go through to build a system and show an example of a system going through the process. I apologize in advance because i will not be showing the signals for the system because I have tested portions of the system and believe that it could be one that I will use to manage money. My systems focus on managing risk first and reward second. I derived my system from a combination of work published by Ralph Vince, Van Tharp and Perry Kaufman. If you have not read any of these authors I strongly suggest that you do. If you are familiar with any or all these authors then I expect you to thoroughly enjoy my posts.

To get started I am attaching a flow chart that I have made to guide you through my process. I will post more about the methods I use tomorrow.

Cheers,

Sody

"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."
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A Quant's  perspective on building a trading system.-flow-chart.pdf  
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  #2 (permalink)
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  #3 (permalink)
Spread Trader
Austin TX
 
Futures Experience: Advanced
Platform: Ninjatrader, Python, & R
Broker/Data: RJO
Favorite Futures: Futures, Spreads
 
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Posts: 313 since Sep 2013
Thanks: 96 given, 843 received

Paradigm Shift


Looking at the flow chart one of the first items I note is a "Paradigm Shift". This is what I call a new way to trading; in actuality it is not new at all. It is some core beliefs that I use to design trading systems that I have collected them primarily from experience, Van Tharp, and Perry Kaufman.

To quickly summarize "The Paradigm Shift" it is a combination of using the popular R-Multiples and statistics to evaluate and use a trading system. They way I think of trading is the study of numbers to provide profit and control risk. Statistics is the study of numbers, and trading should be all about risk and reward.

A Good trading systems needs to be built on a solid foundation, this is my foundation.

See attachment

Next I will be talking about the sample data and how that should be broken up. Then we can get into the fun stuff..

Until then, Cheers,

Sody

"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."
Attached Thumbnails
A Quant's  perspective on building a trading system.-shift.pdf  
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  #4 (permalink)
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Hi,

This simply looks excellent reading. Thanks for sharing your approach.

Nicolas

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  #5 (permalink)
Spread Trader
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Futures Experience: Advanced
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Nicolas11 View Post
Hi,

This simply looks excellent reading. Thanks for sharing your approach.

Nicolas

Thanks Nicolas, I hope you stick with my posts and follow along..

Cheers,

Sody

"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."
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  #6 (permalink)
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SodyTexas View Post
Looking at the flow chart one of the first items I note is a "Paradigm Shift". This is what I call a new way to trading; in actuality it is not new at all. It is some core beliefs that I use to design trading systems that I have collected them primarily from experience, Van Tharp, and Perry Kaufman.

To quickly summarize "The Paradigm Shift" it is a combination of using the popular R-Multiples and statistics to evaluate and use a trading system. They way I think of trading is the study of numbers to provide profit and control risk. Statistics is the study of numbers, and trading should be all about risk and reward.

A Good trading systems needs to be built on a solid foundation, this is my foundation.

See attachment

Next I will be talking about the sample data and how that should be broken up. Then we can get into the fun stuff..

Until then, Cheers,

Sody

Thanks for sharing. I'm currently testing my own system and I can already see a lot of benefit from this

Subscribing to this thread

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  #7 (permalink)
Spread Trader
Austin TX
 
Futures Experience: Advanced
Platform: Ninjatrader, Python, & R
Broker/Data: RJO
Favorite Futures: Futures, Spreads
 
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Posts: 313 since Sep 2013
Thanks: 96 given, 843 received


cejstrup View Post
Thanks for sharing. I'm currently testing my own system and I can already see a lot of benefit from this

Subscribing to this thread

Awesome, I have a subscriber!

"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."
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  #8 (permalink)
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near Paris, France
 
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Two!

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  #9 (permalink)
Spread Trader
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Futures Experience: Advanced
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Broker/Data: RJO
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Posts: 313 since Sep 2013
Thanks: 96 given, 843 received

After a bit of pondering, I decided to be more transparent with this journal and change and open up the system to others including the rules, code, and indicators. Maybe, just maybe, I can get some great feedback on the system to make it great. I will not be using the system that I am building for the Hedge Fund for proprietary issues, however, I will shift gears to a personal system that I am designing.

First, let me talk about the goals of this "new" system. What I need is a system that can be implemented on a small amount of capital. Why? Because as I mentioned in my first post I have a new daughter, and I would like to get a head start on her financial stability. This I believe will benefit followers here at futures.io (formerly BMT) that may want to open a small account and follow along.

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


What I did was open her a UGMA account with FXCM, a Forex broker. The reason I went with Forex and not futures is because of the ability to trade a very small account with micro lots (usually 1000 lot position). This will allow me to start trading on a small amount ($50.00 - $1000.00)of capital; perfect for her. I will be adding a small amount to the account monthly until she is 18.

My hope is to have the account grow to a size large enough that I can move it to futures with proper risk management. Until then micro lots in FX will allow me to still use the principals of risk management that I will be talking about here.

The system itself is a spin-off of the popular Ichimuko indicators on a PnF (Point and Figure) chart. The plan here is to create a system with a t-score of 2.80 of higher.

As true with my flow chart, my objectives are:

Return: 90%
Ruin: 30%
ideal t-score: 2.80
Time-frame: 1000 trades


The initial base system will include the ichimuko cloud adjusted with some Fibonacci numbers, a smooth moving average opposed to the ichimuko moving average, and a MaxMin breakout set at the ichimuko standard of 52 bars. I use PnF a bit different then most traders, as I do not use it to trade catapults but to filter out noise. This is great to adjust time to nothing but price action.

Here is an example of what I plan to achieve:

Please register on futures.io to view futures trading content such as post attachment(s), image(s), and screenshot(s).


The code for the initial system is not written yet, so in the next week I will complete the base system and post it here.

I hope you appreciate the choice to open up the project to everyone, and I look forward to any feedback.

Cheers,

Sody

"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."

Last edited by SodyTexas; August 14th, 2014 at 01:47 PM. Reason: Typo
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  #10 (permalink)
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Nicolas11 View Post
Two!

I'm famous!!!

"The great Traders have always been humbled by the market early on in their careers creating a deep respect for the market. Until one has this respect indelibly engraved in their makeup, the concept of money management and discipline will never be treated seriously."
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