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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)
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KJ Trading Systems Kevin Davey - Ask Me Anything (AMA)

  #51 (permalink)
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I posted this message and you replied:


Hi all!

I am trying to write an EasyLanguage code that takes a limit entry "once into the future", but not neccessarily "at this bar" or "at next bar". Is this possible?

Yes, just save the price you want the limit order in a variable, xxxx for example.

Then, when the time is right, say: buy next bar at xxxx limit;

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  #52 (permalink)
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Hi Kevin,

I was wondering how you handle strategies that trade in opposite directions. For example, if I have one strategy that goes short NG, and another that goes long NG, there is a host of problems if one triggers while the other is active. In SIM of course it will allow you to be in both positions at the same time, but in live money the second trade will null the first position and put you flat. Meanwhile any stops or targets for both strategies remain active, as well as the exit logic for the strategies, which leaves you completely swinging in the breeze and subject to all kinds of hazards.

The obvious solution I guess is to simply use two separate accounts, one that only goes long and one that only goes short, which would allow the strategies to work independently of each other -- you'd just be net neutral while both were active, as any gain in the one would obviously be offset by a loss in the other. But it would prevent the scenario described above at least, and possibly even give you the chance of both winning, if the time frame and constraints were loose enough.

I'm wondering though if there is a way to code the strategy to not enter a trade if the account is already in position in the opposite direction. Actually I guess there are two options -- one would be to code every strategy to not execute a trade if the account was already IN trade for that contract, but the preferable option would be to code it so that it would only prevent execution if the account was in trade for that contract AND in the opposite direction from the new strategy. This would allow you to still have multiple strategies act in the same direction, while preventing any opposing ones from cancelling them out if they're already in.

Anyway I was just curious how you (or anyone else) handles this. I talked to Ninja support about the issue, and basically their recommendation was simply pick a direction, long or short, and only use strategies in that one direction, which of course is ridiculous. Barring that, they said the best option would simply be to have two accounts, again one that only goes long in that market, and one that only goes short. I will probably move to that at some point, but it would be nice to have some kind of stop gap for the time being that would prevent opposing strategies from cancelling positions out and leaving all kinds of executions still active on the account.

Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?
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  #53 (permalink)
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LightWeight View Post
Hi Kevin,

I was wondering how you handle strategies that trade in opposite directions. For example, if I have one strategy that goes short NG, and another that goes long NG, there is a host of problems if one triggers while the other is active. In SIM of course it will allow you to be in both positions at the same time, but in live money the second trade will null the first position and put you flat. Meanwhile any stops or targets for both strategies remain active, as well as the exit logic for the strategies, which leaves you completely swinging in the breeze and subject to all kinds of hazards.

The obvious solution I guess is to simply use two separate accounts, one that only goes long and one that only goes short, which would allow the strategies to work independently of each other -- you'd just be net neutral while both were active, as any gain in the one would obviously be offset by a loss in the other. But it would prevent the scenario described above at least, and possibly even give you the chance of both winning, if the time frame and constraints were loose enough.

I'm wondering though if there is a way to code the strategy to not enter a trade if the account is already in position in the opposite direction. Actually I guess there are two options -- one would be to code every strategy to not execute a trade if the account was already IN trade for that contract, but the preferable option would be to code it so that it would only prevent execution if the account was in trade for that contract AND in the opposite direction from the new strategy. This would allow you to still have multiple strategies act in the same direction, while preventing any opposing ones from cancelling them out if they're already in.

Anyway I was just curious how you (or anyone else) handles this. I talked to Ninja support about the issue, and basically their recommendation was simply pick a direction, long or short, and only use strategies in that one direction, which of course is ridiculous. Barring that, they said the best option would simply be to have two accounts, again one that only goes long in that market, and one that only goes short. I will probably move to that at some point, but it would be nice to have some kind of stop gap for the time being that would prevent opposing strategies from cancelling positions out and leaving all kinds of executions still active on the account.



Thanks for the question. Sometimes, I do trade different strats in different accounts, although you pay more in trading costs, and margin allocation isn't as efficient. That is Method 1.

Method 2: make one strategy, combining all your strategies into one.

Then you use a counter to figure out long and short.

Somewhere in the forum there is an example of this. Many people use this method, and just trade the net. I know of a CTA who uses this approach to trade 20-30 strategies at the same time.

It will take you a while to work out the logic.


Method 3:

Another option is to trade the 2 strategies in the same acct, if your software can handle it. You say Ninja can't do this (I am surprised), I've done it in Tradestation, and I've heard Multicharts does it with ease (I've never tried MC).

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #54 (permalink)
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LightWeight View Post
I was wondering how you handle strategies that trade in opposite directions. For example, if I have one strategy that goes short NG, and another that goes long NG, there is a host of problems if one triggers while the other is active. In SIM of course it will allow you to be in both positions at the same time, but in live money the second trade will null the first position and put you flat. Meanwhile any stops or targets for both strategies remain active, as well as the exit logic for the strategies, which leaves you completely swinging in the breeze and subject to all kinds of hazards.

The obvious solution I guess is to simply use two separate accounts, one that only goes long and one that only goes short, which would allow the strategies to work independently of each other -- you'd just be net neutral while both were active, as any gain in the one would obviously be offset by a loss in the other. But it would prevent the scenario described above at least, and possibly even give you the chance of both winning, if the time frame and constraints were loose enough.

You do realize Lightweight that whether you do this in two seperate accounts or in one account, the risk and trades are identical. You might have a better state of mind, but your trades, and risk are the same. The only difference is you will need more money to support the same positions if in seperate accounts.

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  #55 (permalink)
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Having two separate accounts or the corresponding margin increase really isn't an issue, I'm more concerned with how to prevent the execution of one strategy messing up an ongoing strategy that was in trade in the opposite direction. If I only had two strategies that did this then combining them could be an option, but I may have as many as 10 gold strategies alone, with 5 long and 5 short, and it wouldn't be feasible or ideal to combine all 10 into one single strategy....each of them is designed to only work during certain time frames and certain market conditions, but those conditions may overlap, or a previous strat may not have run its course yet while an opposing one is triggered by its own conditions.

Ninja can indeed do all this, but the problem of course is you're clearing all your trades through one account, and the CME or whoever doesn't know they are separate strats, just buy and sell. Like I said it will let you do this in sim, which is great for a walk forward period, but the only way to replicate that live as far as I can see would just be having those two separate accounts.

As for the risk, this is precisely why this is a concern -- I don't want to have strategies neutralizing each other out of the market, while the stop orders and exit logic continue to run, thus possibly putting me back in on accident if price moves into one or the other (or the exit logic triggers and places an exit order, which would now be an entry order). I'd much rather have two strategies offsetting each other in position, if it came to that, than a completely unpredictable result of them cancelling out trades while leaving everything else intact. I actually watched this happen once live, when I was short NG on a strat and a long NG strat triggered, and that's exactly what happened -- I was flat, but I now had stops and targets sitting on the chart, waiting to be triggered, plus the exit logic still running. I had to manually cancel out the stops and disable the strats, and then renable them, to prevent any further action, which is fine and dandy if I can watch my VPS all day, but not so much if I plan on sleeping or ever leaving the house.

Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?
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  #56 (permalink)
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LightWeight View Post
Having two separate accounts or the corresponding margin increase really isn't an issue, I'm more concerned with how to prevent the execution of one strategy messing up an ongoing strategy that was in trade in the opposite direction. If I only had two strategies that did this then combining them could be an option, but I may have as many as 10 gold strategies alone, with 5 long and 5 short, and it wouldn't be feasible or ideal to combine all 10 into one single strategy....each of them is designed to only work during certain time frames and certain market conditions, but those conditions may overlap, or a previous strat may not have run its course yet while an opposing one is triggered by its own conditions.

Ninja can indeed do all this, but the problem of course is you're clearing all your trades through one account, and the CME or whoever doesn't know they are separate strats, just buy and sell. Like I said it will let you do this in sim, which is great for a walk forward period, but the only way to replicate that live as far as I can see would just be having those two separate accounts.

As for the risk, this is precisely why this is a concern -- I don't want to have strategies neutralizing each other out of the market, while the stop orders and exit logic continue to run, thus possibly putting me back in on accident if price moves into one or the other (or the exit logic triggers and places an exit order, which would now be an entry order). I'd much rather have two strategies offsetting each other in position, if it came to that, than a completely unpredictable result of them cancelling out trades while leaving everything else intact. I actually watched this happen once live, when I was short NG on a strat and a long NG strat triggered, and that's exactly what happened -- I was flat, but I now had stops and targets sitting on the chart, waiting to be triggered, plus the exit logic still running. I had to manually cancel out the stops and disable the strats, and then renable them, to prevent any further action, which is fine and dandy if I can watch my VPS all day, but not so much if I plan on sleeping or ever leaving the house.

I recommend you find trading software to do what you need. If Ninja indeed won't do it, then you should find something else.

One thing that bothers me: you mention 2 NG strats cancelling each other out, then you cancelled the stop loss and profit target orders because the exit logic was still running. I think those should orders remain in.

Here is an example:

Scenario: Price is at 5.0, goes straight up to 6.0


Strat A - Long at 5.0, profit target at 6.0
Strat B - Short at 5.0, stop loss at 5.5

1) Run into separate accounts:

Gain on A = 6-5 = $10000
Loss on B = 5-5.5 = -$5000

Net = $5000 - $10 commissions = $4990


2) Your proposed way, cancelling exit orders

Net = $0 (no trades)


3) Let exits work as they normally would

From 5.0 to 5.5, you will be flat. At 5.5, your stop loss for B hits, making you net long overall.

From 5.5 to 6, you are long. At 6, A profit target triggers, making you flat

6-5.5 = $5000 profit

Net = $5000 - $5 commission = $4995



Options 1) and 3) are correct. Option 2) is wrong.


Good software should be able to handle Option 3 bookkeeping internally, and execute orders properly.



So, hopefully you can see that cancelling of the exits is not the way to do it.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread

Last edited by kevinkdog; May 22nd, 2014 at 08:47 AM.
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  #57 (permalink)
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kevinkdog View Post
I recommend you find trading software to do what you need. If Ninja indeed won't do it, then you should find something else.

One thing that bothers me: you mention 2 NG strats cancelling each other out, then you cancelled the stop loss and profit target orders because the exit logic was still running. I think those should orders remain in.

Here is an example:

Scenario: Price is at 5.0, goes straight up to 6.0


Strat A - Long at 5.0, profit target at 6.0
Strat B - Short at 5.0, stop loss at 5.5

1) Run into separate accounts:

Gain on A = 6-5 = $10000
Loss on B = 5-5.5 = -$5000

Net = $5000 - $10 commissions = $4990


2) Your proposed way, cancelling exit orders

Net = $0 (no trades)


3) Let exits work as they normally would

From 5.0 to 5.5, you will be flat. At 5.5, your stop loss for B hits, making you net long overall.

From 5.5 to 6, you are long. At 6, A profit target triggers, making you flat

6-5.5 = $5000 profit

Net = $5000 - $5 commission = $4995



Options 1) and 3) are correct. Option 2) is wrong.


Good software should be able to handle Option 3 bookkeeping internally, and execute orders properly.



So, hopefully you can see that cancelling of the exits is not the way to do it.

Hi Kevin,

I agree that it's possible letting the strategies continue to work may result in a fortunate outcome, but I think it's equally possible the opposite is true, and even more likely. One problem is that not every strategy I use has a stop loss and/or profit target -- some of them have both, some have just a stop loss, and some have neither, relying entirely on exit logic to close the trade. So there may or may not be pending orders to offset anything of capture a gain, and the result is that I'd end up naked in the market and subject to whatever direction it was going. Another issue is the exit logic for strategies....it's possible that after two strategies offset I may be flat, with neither stops or targets working, but the exit logic still running -- either exit on COBC, or exit on market close. If and when that triggered (as the strategy still assumed I was in trade), it would put me BACK into the market, and again naked, since the exit of course doesn't generate any further orders. My biggest concern here I think is risk avoidance, which is why I'm keen on either not having the opposite trade generate in the first place, or making sure that all of the exit logic and stops can work properly without putting me into the market either naked, or in an unexpected position, while I'm not able to monitor trades.

There's also of course the question of what was going on with the previous strategy at the time....maybe it was up on the offsetting strategy took it out for a profit, or perhaps it was losing and the opposing strategy acted as a stop loss...in some sense it may be beneficial, as one would assume that the more recent strategy was acting on more recent information, and may have thus spotted a trend change that the older strategy had not processed yet. Using separate accounts would create a kind of hedging effect in this regard, at least until one of them was out, while using the same account would prevent both trades from operating any further (until the still working stops are hit, as you mentioned, which may or may not work in your favor, and are no longer acting in accordance with the underlying strategy).

Another part of my reasoning for wanting both strategies to operate independently is the possibility they may both win, however rare that is. Say a long strategy has a $1000 target and stop, and a short strategy has a $300 target and stop -- it's possible that the short strategy could activate while the long is in, take advantage of a retracement in the uptrend to hit the $300 target and get out, and then the uptrend could resume and the long could also hit its $1000 target. If the strats simply cancel out, then neither can now work -- you're stuck with whatever profit or loss the original had already generated, and the new short has no chance to work either. And depending on the stop and target configuration of both strats, you may or may not have pending orders now on the board, operating quite randomly and independently.

It's all a bit complicated I suppose, and something I hadn't quite foreseen until I saw my sim strategies going in at the same time, and then saw it with a live strategy. I'm honestly surprised there isn't more discussion about it or definitive solutions -- I'm not sure if most people only run strategies in one direction, or run so few strategies that they never encounter the issue. I'm currently running about 75 strategies in sim, and while it's very rare for opposing strats to be in at the same time, I do occasionally see it, and I've only seen it once live, but it did happen.

Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That's the other guy's problem. In this building, it's either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley. Are you with me?
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  #58 (permalink)
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LightWeight View Post
Hi Kevin,

I agree that it's possible letting the strategies continue to work may result in a fortunate outcome, but I think it's equally possible the opposite is true, and even more likely. One problem is that not every strategy I use has a stop loss and/or profit target -- some of them have both, some have just a stop loss, and some have neither, relying entirely on exit logic to close the trade. So there may or may not be pending orders to offset anything of capture a gain, and the result is that I'd end up naked in the market and subject to whatever direction it was going. Another issue is the exit logic for strategies....it's possible that after two strategies offset I may be flat, with neither stops or targets working, but the exit logic still running -- either exit on COBC, or exit on market close. If and when that triggered (as the strategy still assumed I was in trade), it would put me BACK into the market, and again naked, since the exit of course doesn't generate any further orders. My biggest concern here I think is risk avoidance, which is why I'm keen on either not having the opposite trade generate in the first place, or making sure that all of the exit logic and stops can work properly without putting me into the market either naked, or in an unexpected position, while I'm not able to monitor trades.

There's also of course the question of what was going on with the previous strategy at the time....maybe it was up on the offsetting strategy took it out for a profit, or perhaps it was losing and the opposing strategy acted as a stop loss...in some sense it may be beneficial, as one would assume that the more recent strategy was acting on more recent information, and may have thus spotted a trend change that the older strategy had not processed yet. Using separate accounts would create a kind of hedging effect in this regard, at least until one of them was out, while using the same account would prevent both trades from operating any further (until the still working stops are hit, as you mentioned, which may or may not work in your favor, and are no longer acting in accordance with the underlying strategy).

Another part of my reasoning for wanting both strategies to operate independently is the possibility they may both win, however rare that is. Say a long strategy has a $1000 target and stop, and a short strategy has a $300 target and stop -- it's possible that the short strategy could activate while the long is in, take advantage of a retracement in the uptrend to hit the $300 target and get out, and then the uptrend could resume and the long could also hit its $1000 target. If the strats simply cancel out, then neither can now work -- you're stuck with whatever profit or loss the original had already generated, and the new short has no chance to work either. And depending on the stop and target configuration of both strats, you may or may not have pending orders now on the board, operating quite randomly and independently.

It's all a bit complicated I suppose, and something I hadn't quite foreseen until I saw my sim strategies going in at the same time, and then saw it with a live strategy. I'm honestly surprised there isn't more discussion about it or definitive solutions -- I'm not sure if most people only run strategies in one direction, or run so few strategies that they never encounter the issue. I'm currently running about 75 strategies in sim, and while it's very rare for opposing strats to be in at the same time, I do occasionally see it, and I've only seen it once live, but it did happen.

I guess I don't understand your situation fully, because I have never had the issues you bring up. I see it as a bookkeeping issue - one for you to take care of it code if possible, or to use trading software that does it for you.

As an example, I was just talking to a trader friend in New Zealand today (tomorrow for him). He trades 10 strats at the same time, each with its own targets and stops, and he has no issues.

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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  #59 (permalink)
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Degrees of Freedom

Kevin--

I'm going through Pardo's stuff, and I have a question about Degrees of Freedom ("DOF").

He gives the following examples:

1. 50 Day Closing SMA on a daily chart will consume 51 DOF (50 closes plus the rule)
2. 10 Day Closing SMA and a 50 Day Closing SMA on a daily chart will consume 52 DOF (50 closes plus 2 rules)
3. 10 Day Closing SMA and 50 Day High SMA on a daily chart will consume 62 DOF (10 Closes, 50 Highs, 2 rules)

Would a simple rule like if Close[0] > Close[x] only consume 1 DOF (1 rule) or would it consume x + 1 (x closes plus 1 rule)?

Also, how would an indicator like RSI and MFI's DOF be calculated? Let's assume each is 14 periods (standard). Given that the RSI is looking at just the input (i.e., close), would the RSI consume 14 + 1 (15 DOF)? And what about the MFI, which looks at Close, Low, High and Volume? Would the MFI consume 14 Closes, 14 Lows, 14 Highs and 14 Volumes plus the rule, for a total of 57 DOF--or would it just consume 14 + 1 (15 DOF)?

Also, when calculating the beginning DOF, do you only include the items that are only being examined within the indicators? For instance, on a moving average Close cross over system that doesn't look at High, Low, Open or Volume, would the gross DOF on a 1,000 bar chart be 1000 or would you still include H, L, O, V (gross total of 5000 DOF)?

Thanks for your insights.

All best,

Aventeren

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  #60 (permalink)
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aventeren View Post
Kevin--

I'm going through Pardo's stuff, and I have a question about Degrees of Freedom ("DOF").

He gives the following examples:

1. 50 Day Closing SMA on a daily chart will consume 51 DOF (50 closes plus the rule)
2. 10 Day Closing SMA and a 50 Day Closing SMA on a daily chart will consume 52 DOF (50 closes plus 2 rules)
3. 10 Day Closing SMA and 50 Day High SMA on a daily chart will consume 62 DOF (10 Closes, 50 Highs, 2 rules)

Would a simple rule like if Close[0] > Close[x] only consume 1 DOF (1 rule) or would it consume x + 1 (x closes plus 1 rule)?

Also, how would an indicator like RSI and MFI's DOF be calculated? Let's assume each is 14 periods (standard). Given that the RSI is looking at just the input (i.e., close), would the RSI consume 14 + 1 (15 DOF)? And what about the MFI, which looks at Close, Low, High and Volume? Would the MFI consume 14 Closes, 14 Lows, 14 Highs and 14 Volumes plus the rule, for a total of 57 DOF--or would it just consume 14 + 1 (15 DOF)?

Also, when calculating the beginning DOF, do you only include the items that are only being examined within the indicators? For instance, on a moving average Close cross over system that doesn't look at High, Low, Open or Volume, would the gross DOF on a 1,000 bar chart be 1000 or would you still include H, L, O, V (gross total of 5000 DOF)?

Thanks for your insights.

All best,

Aventeren


Thanks for the question. I'm not sure I am the best person to answer this question, because 1) I don't use his method to calculate degrees of freedom, and 2) I don't want to give a false interpretation of Mr. Pardo's excellent work.

That being said, here's how I would answer:

Would a simple rule like if Close[0] > Close[x] only consume 1 DOF (1 rule) or would it consume x + 1 (x closes plus 1 rule)? Kevin: If x is constant, I would say 1 DOF.

Also, how would an indicator like RSI and MFI's DOF be calculated? Let's assume each is 14 periods (standard). Given that the RSI is looking at just the input (i.e., close), would the RSI consume 14 + 1 (15 DOF)? Kevin: I would say yes.

And what about the MFI, which looks at Close, Low, High and Volume? Would the MFI consume 14 Closes, 14 Lows, 14 Highs and 14 Volumes plus the rule, for a total of 57 DOF--or would it just consume 14 + 1 (15 DOF)? Kevin: If you use H,L,C and V in your total DOF calculation, then I would use the bigger number.

Also, when calculating the beginning DOF, do you only include the items that are only being examined within the indicators? For instance, on a moving average Close cross over system that doesn't look at High, Low, Open or Volume, would the gross DOF on a 1,000 bar chart be 1000 or would you still include H, L, O, V (gross total of 5000 DOF)? Kevin: I would only include what you use for total DOF. So, if you only look at close data, just calc total DOF on the number of closes.


Again, this is just my interpretation of Pardo's rules, and I could be dead wrong!

If you have any questions please send me a Private Message or use the futures.io "Ask Me Anything" thread
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