Article / 20 July 2016 at 13:00 GMT

May the force be with your 'algo'

Hypothesis Testing
United Kingdom
  • Algorithmic trades can boost your success rate, but they don't work on hunches
  • Your trade programme will need continuous optimisation
  • Look to decrease risk as your trade size grows
  • Consider a basic algorithmic trade based on how EURUSD moves vs GBPUSD
  • Other 3-way currency pairings can also be established with this simple, robust setup
  • Set stops as a matter of default; eliminate lag as much as possible
  • Beware the potentially destructive spread between futures and cash-market prices
  • Ignore anyone who says the Monte Carlo technique works

Boxes suspended in space
 May "the force" be with your algorithm. Image: iStock


By fxtime*

Let's talk about "algos" — algorithmic trades as a way to boost your chances of consistent success and as a means of defending your cash pot in case the market goes against you.

First I need to assume we know our risk structure. Just how much are we really prepared to lose? What percent of our total pot of trading cash are we willing to use per trade? And from that we should know exactly how many trades we can make before getting wiped out. Once you know this figure — and only then — you can start considering building your first algorithmic trade because any trade programme you devise must have a success rate superior to the total loss rate and be sufficient to earn consistently more than the opening balance month on month.

Second, we don't want to seek colossal returns. You will find that your programme will need continuous optimisation as the success rate steadily builds your account, and you will find trade sizing and diversity become ever more crucial. Compounding your trade sizing increases your underlying risk in pounds and pence, even though your percentages remain static, when you should really be looking to decrease risk as your trade size grows.

Be sure you understand what drives the marketplace you trade. Algorithmic trades do not work on hunches.

Next, you want to consider a really contentious issue for traders. Trades with high probability of success earn fewer points/pips. We might see a trade that will earn 50+ pips per day, and I have posted them on site, but they expose you to the market for longer. Most will not consider time as a risk factor, but if you trade six or seven-figure sums, you will probably reconsider that view. So would you rather trade something that gives you regularly 10pts/pips per day with incredible reliability, or something that has a lower success rate but earns, say, 50pts/pips per day while incurring far more losses or drawdowns (or both).

Dollars, pounds and euros
 Consider a simple and robust algorithmic trade based 
on a three-way currency pairing. Photo: iStock

Earlier on the site I posted a very basic algorithmic trade with real time updates. This is a trade that earns 44 pips per day on average.

The earlier posted algorithmic trade is as follows;

EURUSD rallies faster than GBPUSD rally, then EURGBP rises
EURUSD rallies slower than GBPUSD rally, then EURGBP falls
EURUSD falls and GBPUSD rallies, then EURGBP falls
EURUSD rallies and GBPUSD falls, then EURGBP rallies
EURUSD falls faster than GBPUSD falls, then EURGBP falls
EURUSD falls slower than GBPUSD fall, then EURGBP rallies

No charts are required, nor is price a concern. Your point of measure is merely how far EURUSD moves in relation to Cable (GBPUSD) in terms of pips or the rate of change indicator. The live trade posted for this very simple algorithm showed profits regardless of the market environs as we weren't interested in market price direction, but the correlation between each FX pairing. The beauty of running some algos is that you can at times ignore direction entirely and let the pure mathematics — or, if you like, "the force" — be with you!

This is a pure basic structure and can be enhanced easily using ratios between the currencies for trade entry criteria and exit criteria. Don't be fooled by its simplicity as it is robust. Furthermore this is not the only three-way currency pairing you can establish and benefit from.

Determine what you want to measure and how you will trade it: price/spread/ROC and likewise return on capital employed. You really need to consider what you expect to earn and then determine if the trade structure is worthwhile. It would after all be pointless to trade an illiquid market that earns less than the "risk-free return rate" you could get from, say, a savings account, which (on balance) has no risks.

Stops need setting as a matter of default, but with algorithmic scenarios you can preset the classic systems or trail in monetary values or percentage values or even ratio analysis for spread trades. Be sure you know what optimises your returns.

Eliminate lag as much as possible. Site providers will testify that the underlying use of lagging averages is a major source of curve-to-fit issues that cause many successful theoretical trade strategies to fail. By all means enter via these, if that's your preference, but they usually require a bigger stop to perform reliably.

Time-stamp requirements and globex skew are another source of trouble. When you backtest and see the colossal returns that can be made, especially with compounding, only to find that with real money in real-time situations your account is destroyed partly due to time-stamp issues. Pre-set your programme to run real-time hours only. Never try to allow a trade to run 24 hours a day, five days a week, as globex conditions rarely function as they would in normal market hours due to illiquidity and because market providers use quant models for suggested market price values throughout the closed hours of a market.

Tick backtest as normal testing could produce a curve-to-fit scenario so historic data follows the equity curve, but never earns in real time. Many traders use the mammoth markets of futures — often because they are exceedingly liquid and margin requirements are lower.

Please remember, however, that futures usually operate at a discount to the cash-market price, but sooner or later will settle at the cash-market price. Any trades opened on a futures market will incrementally day by day trade in the manner you expect, but will also adjust to the reality of a cash settlement price. The spread between futures and the cash market is often capable of destroying your trade function and also gives entirely bogus results as to success values of a strategy when you backtest. Forgetting time decay (theta) when trading futures for any period of time can be perilous.

Correlation and non-correlation structures/benefits you. Obviously we can trade highly correlated markets or equities, but when they go against you, then remember that all the highly correlated markets/equities will also go against you. 

Millennium Falcon
 The smuggler Han Solo won his spaceship, the Millennium Falcon, in a card game. 
But you shouldn't count on winning that way. Photo: iStock

The simple six-line algorithmic trade outlined above is utterly correlated, but only trades the imbalance between EURUSD and GBPUSD, which permits tighter control of your trade. Consider uncorrelated markets, such as soft commodities and the Dax. When one collapses, the other is unlikely to follow as hard or as fast, so it can slow down losses when everything goes bad in the general markets. Sometimes a defensive uncorrelated trade helps.

i could ramble on about correlation, especially when comparing equities and how fast each stock can move. But suffice it to say that, even in the highly volatile financial sector, some bank stocks move at distinctly different speeds from others, which can help to defend your account, if such protection is needed, or it can serve as a spread trade for revenue purposes.
 
Points of interest or points of control within markets is too big a subject to cover here (that will need to be the topic of another article), but an obvious place to start is the open range or last night's close price.

Deliberately there is no computer language here as I don't know what software/system you use, but can be posted if needed. Trade small with these functions. If the trade strategy is good, you will steadily accrue revenue.

Another subject for later is reviewing existing strategies. Ignore anyone who says the Monte Carlo technique works, as doubling your stake on each trade to ensure you make a profit is just daft. Do not be tempted by this. 

Say you had seven duff trades in a row, and initially you traded $1 per point with a 50-pip stop. Then on your eighth trade, you need $128 per point with a $6,400 margin requirement, but losses incurred would be $6,350, meaning you would have to earn 50 pips to reach breakeven. Many have fallen for this scam of a strategy and it is banned in casinos or they set a maximum stake size to guarantee failure. Even George Soros tested this and found it to be useless. So, if you have more money than him, then feel free to try it.

Finally was "the force" with the algorithmic trade described above? 

The bare results of this strategy running from Monday, July 11, to the time of writing, Thursday, July 14, after the Bank of England announcement, is 360 pips with no losses. All posted live.

Monte Carlo casino
 Don't believe anyone who says the "Monte Carlo technique" works. 
It doesn't. Photo: iStock


— Edited by John Acher

*fxtime is a pseudonym

20 July
fxtime fxtime
In truth the best entry system with this is via ratios between the eurusd and gbpusd. We saw this morning an imbalance and a ratio of 2:1 occurred where the rate of pips movement on the cable was far stronger than any movement on the eurusd consequently as the algo predicted....eurgbp declined and the average income could easilly have been attained in excess of the daily +44 pips described above :-)
20 July
quant quant
This Monto Carlo technician fellow is only simulating. The one you are looking for is this Martin Gale guy. ;-)
20 July
fxtime fxtime
LOL.....you certainly made me laugh. The martingale pricing model for risk neutrality is a bedrock formulation but the casino notion is appalling.
Quant this is an area of programming easilly in your realm....it would be great to see some of your postings on the algo' scenarios :-)
wiki link attached for those wanting to see what Quant relates to...
https://en.wikipedia.org/wiki/Martingale_pricing
Also consider via wiki Markov Chains but we may be getting ahead of ourselves here :-)
20 July
fxtime fxtime
I presume quant you have sussed the three fx pairings and correlations are a ''pricing chain'' and risk return scenario? eg a skew on the risk neutrality etc?
20 July
quant quant
For your 3 pairs approach. Similar Idea, but different approach here. I map out the real net changes of the single currencies. For me this gives me a better roadmap than looking on pairs. (The chart shows the net moves of EUR/GBP/JPY/AUD/CHF since 5pm NY EST up to now).
20 July
fxtime fxtime
Wow...great stuff thanks.
20 July
Qi2 Qi2
I have been working on a version of the EUR/USD, EUR/GBP, GBP/USD, the algo I am running trades the GBPUSD based on the ratios of EURUSD and EURGBP. Seems to me it's better to trade the EURGBP per the article above? I think that is what your are pointing put? Based on the above, your performance exceeds mine substantially!!
20 July
fxtime fxtime
Bang on the money Qi2...this algo purely trades the eurgbp based on the ratios of the cable and eurusd....it can also be applied to audjpy/usdjpy/audusd or even major stock inidices providing there is a correlation eg sp500/djia/qqq however the golden rule is that you require the six line entry values given. If you just use the the first two lines of the algo then you will earn only a fraction of what is available and incur greater number of losses. Hope this makes sense?
If you want an algo just for the cable or the euro or chf or even yen let me know and I can write one of the weekly articles around them. Obviously these functions can be traded manually too.
20 July
Qi2 Qi2
Amazing! What about the SL and TP, is this where you use ratio optimization for either position exit?
20 July
fxtime fxtime
Adjust the ratios for your stops so the largest stop ratio can be 1:1 or the tightest stop ratio would be 1.4:1...take profits targets are down to you but I purely use a trailing ratio stop myself. However if the market exceeds 4:1 then you know the market is overheating so manually tighten the stops.
20 July
fxtime fxtime
LOL.....are we making you into a stats trader Qi2 ???
20 July
Qi2 Qi2
I am running multiple parameters, I tried attaching the word document, but it wouldn't send, so here's a screenshot of a long exit and I can privately send you the entire mathematics document
20 July
Qi2 Qi2
Haha, I actually have been investing in this bloody algo for over a year, my engineers are making a living :) and at the moment I am not.... but its starting to show a return and I am able to withdraw a little monthly.
20 July
quant quant
Hi Qi2. (And thank you fxtime for this article). For the currency examples there is (in my opinion) no exploitable arbitrage or time lag involved (the soft commodities vs DAX example is on a different page).
Long EURUSD + Short GBPUSD gives you a 'synthetic' Long EURGBP. You can do the math with the quotes by yourself: EURUSD / GBPUSD = EURUSD. This is any time near enough to the 'real' EURUSD quotes. The Market Makers and HFT do the all arbitrage - just for you, but without you ;-). Now for the signals: I would qualify this as a (short term / intraday ) momentum trade. You are betting on momentum follow through. You qualify the single better mover and go with it. And in the last 2 weeks the GBP was the mover, EUR much less, and the USD was not doing near to nothing. (But this has changed this week.) So GBP vs EUR gave you more pronounced signals and easier reads than GBP vs USD.
20 July
fxtime fxtime
Gotta agree with that :-)
20 July
Qi2 Qi2
Hi Quant, I tried a few synthetic arbs in my earlier trials, but my millisecond access in a micro second world left me hanging :(
20 July
fxtime fxtime
Also this is a free strategy posted on the net where Andreas Clenow done an interview recently. The function isn't mine but it backtests well.
20 July
fxtime fxtime
Strangely I thought this article might be a waste of space as I wasn't sure if anyone would read such a long article or even want to consider an algo !
20 July
Qi2 Qi2
It's a fantastic article, one of the best theorem I have seen in 100's of quant or algo based sites proliferating the web and your theorem in this article is top notch!
20 July
quant quant
And we haven't touched the high probabilty / risk / expectancy part yet.
20 July
fxtime fxtime
LOL....Quant that is a huge topic and next weeks article shows an equity strategy that relies on high probability with minimum expectancy plus risk in comparison to traditional scenarios. The result was the high probability function doubled the net values on NO leverage where as usual ''scenarios'' at best matched the index. I also cover the risk free rate. All data as usual is not enhanced or trade results compounded it is just the hard results even though we can all improve on these skeletal basics I give here.
Thx Qi2
20 July
fxtime fxtime
Probability is split into sectors really and we need to separate conditional probabilities, sensitivity of prior distribution, etc etc plus Markov Chain/metropolis/montecarlo/Gibbs/binomial blah blah blah but I suspect readers here want a vanilla basic approach to build from. Initially i am sticking to the basic frequentist concept before i add anything tighter.
Interesting discussion pointers though imho.
20 July
Qi2 Qi2
As I live in Vancouver, I was sound asleep during this excitement :)
20 July
Qi2 Qi2
The time is on order book and chart is UTC- 08:00 Pacific Time
20 July
fxtime fxtime
LOL.....you can build a meta file to take advantage though as the ratios will always be quick to take advantage of the eurgbp distortion using the above and the trail stop is tighter so ensures you keep your profits....or if trading a skewed ATR function you could take the GBPUSD trade on its own.
20 July
Qi2 Qi2
fxtime, you're hilarious, I have run models on Markov, but not the rest, other than the "blah, blah, blah"
20 July
fxtime fxtime
Presume you preset a time stamp for the algo you operate to reset values at a time frame convenient to yourself? Also ignoring the ratio trade scenarios you can catch the above screengrab move of yours via a straightforward standard deviation algo....I have commented on these often enough but you need to adjust the std dev to accommodate kurtosis skew.
20 July
fxtime fxtime
LOL...we've all run the blah blah blah theorems LOL
20 July
quant quant
My opinion on risk. For for pure intraday trading: Retail ( recreational ??) traders try to swing for the fences catching 10pt moves in the S&P. but being 15pt under water and running on hope instead on stats. In the futures markets, especially if you trade thicker futues markets like EuroSTOXX or Bonds you can make a living - a career - with a net expectancy of 1-2 ticks. Short trade duration, big size. So if you can maintain a real edge over hundreds of trades and more (trades, real trades done - not backtests) - go up with size, reduce targets and stops, reduce time in trade - and in consequence reduce you risk. Thats the Prop Shop route. Sure there are other models, but its not about being right, or a hero, or calling extraordinary trades. I just a lot of 'common' - educator induced - knowledge about trading is plain wrong.
.
20 July
Qi2 Qi2
I haven't tried a standard deviation model, this one runs opposite of your article, calculating EUR/USD and EURGBP to trade GBPUSD as primary. It will enter EURUSD positions in a ratio change, however as you can see both failed, which is why your theorem is better :)!
20 July
Qi2 Qi2
I agree with you 100% Quant, and also data (time and sales, volume, lasted traded price) is much better on futures, creates a more complex algo, but greater probability within the mathematics
20 July
fxtime fxtime
Quant you summarised pretty much what I am trying to describe above and more.....totally agree on higher probability trades give lesser pips/points gained but of a higher value with a consistent revenue stream....secondly (sadly) it is so rare for punters to comment on TIME as a risk value and your very last sentence should be in BOLD.
20 July
quant quant
It ALL about time. Or in 'Market Profile' Lingo - The Other Timeframes vs Day Time Frame. Without the time context every 'talking head', every signal is completely useless. Like the 'GBP will go up'. So what: In 5 days, 5 minutes , 5 seconds or next year.
20 July
fxtime fxtime
100% agree :-)
20 July
Neil D Neil D
Is this the rocket science class............or algophysics maybe ????
20 July
Neil D Neil D
Don't know if any of you have heard of Shaun Downey, but he wrote a whole trading manual on the importance of Time in the trading model
20 July
fxtime fxtime
Interesting ! I don't know of the guy .....most of the Time factors I have studied are from Steidlamyer; some old Neiderhoff ideas and a series of subjects on (Metric) Predicted Variables which included Time as a function ! Plus the usual basics.
20 July
fxtime fxtime
How is the City these days after BT suffering its' biggest ''outage'' today?
20 July
Neil D Neil D
He wrote a book called Trading Time...........he was at CQG and showed me how to backtest on their systems- then I managed to scrounge a copy of the book!
20 July
Neil D Neil D
Have hardly any contact with the City these days...........
20 July
fxtime fxtime
Hey that book would be worth a lot now then :-) You will have to start publishing excerts :-)
Seriously expensive software CQG too....presume you used it before in your full blown commod days? Are you still using these days?
Sadly I couldn't justify the expense (for CQG or Bloomberg) and have settled for a substantially cheaper subscription to Ensign and Genesis but in truth Saxo provide a clear and free package for most purposes !
20 July
Neil D Neil D
Yeah too right.............I think we were paying about 5k a month for 3 packages! Not used it for years and wouldn't know how to now........very good tho it was! It was always the best because the data was totally clean
20 July
fxtime fxtime
I pay around £180pcm these days but the software is clean and the data package and algo functionality is great for me. However if I had the time I could watch the market and manually do most if not all the trade functions but ... I am too lazy/thick LOL.
20 July
Neil D Neil D
Don't do any testing these days...........so happy to use Saxo platform functionality
21 July
fxtime fxtime
Update...the cable dropped substantially faster than any movement from the eurusd so we exceeded the 2:1 ratio and a long eurgbp was entered and you should have easilly exceeded the 44pips average return today. Charting wasn't necessary for this as it is a trade on the eurgbp based purely on the 6 line description above for your eurgbp trade using the daily rate of movement in the cable against the eurusd. :-)
21 July
fxtime fxtime
If you were using a ratio stop the 1:1 ratio would have closed your trade now for +25...remember this is the widest stop permitted. The 1.4 : 1 would have secured the 40+pips :-)
21 July
quant quant
Still looking for the 'force'?

Ready for some summer fun?

How about a little ALGO DAY TRADING trading contest?

To answer the following question: Would a robot get a job as a Prop Trader?

If interested I would publish two rule sets: One for a first assessment and qualifying, and then the the full performance rules for the day to day job. And to be clear: This is not about some casual trading, this is about high performance. In the same league as top athletes or artists.

And for full disclosure: While I am quite comfortable with Longer Term Algo Models, I am still struggling - as a algo trader - with some aspects in day time frame. So I have nothing ready and (pre made) prepared to show off.

So my answer for now is: The robot would get the job, but would have hard time to keep it :-)

So ready for "MAN vs MACHINE"?
21 July
fxtime fxtime
A sort of modern version of a ''turtle'' experiment.....a robot would need to be constantly optimised for the algo to remain ''real time'' relevant if you see what I mean.
21 July
fxtime fxtime
Intraday I prefer ratio style algo trading or std dev but long term algo's require deeper drawdowns as computer programmes never seek tops or bottoms as they are configured to seek evidence of a change of trend before scaling a trade in any direction. If averages are used they are always lagging indicators which by there very nature give slow response signals for an algo. ATR and skew are faster however matrices work well and long term trades permit scaling factors that certainly give major income generation. So the question man or robot for long term scenarios......I suspect (on balance) man ! Too easy for world events to wrong side the computer where as ''man'' may well be more aware of the fundemental issues that could effect core positions? But its a close call as the algo just responds to the hard facts.
21 July
quant quant
To start lets think of a more simpified robot. You switch it on, and it will wait for the next avail. trade and take it. And manage it to the end.. With news or some special events you just turm it manually off. Just the core functionality: Find a trade and manage it. Everything else would be a addon.
21 July
fxtime fxtime
OK with you ....use the above system if you want? I reset every day at 6pm BST which is effectively turning off and then back on.
21 July
quant quant
I used a lot very 'simple machines' as i called them. 'One Trick' robots: Overnight Trades, Gaps, Breakouts, and so on. Normally the work is done for the day after this one configured trade. This works to some extent quite well. The hard part is to keep a robot engaged through the day in multiple serial trades like rotations or orderflow inbalances.
21 July
fxtime fxtime
Actually if it helps...when I train people for development of algo style trades I normally start with a binary event style programme....eg probability of B occurring when event A has occurred etc. Therefore the most basic scenario they start with is selecting an illiquid time point in the market of their choice so as a defined structure for you;
6pm BST we turn our ''robot'' on.
Lets say we are trading spot eurgbp in this instance.
An hourly close above the 6pm price the algo opens a trade long seeking +5pips
An hourly close below the 6pm price the algo opens a trade short seeking +5pips
Stop is 40pips
Only one trade can occur at any one time
Lets make it even simpler and say only one long and one short can be opened in any 24hr period.
Thus max profit is +10pips in this basic scenario.
Chart attached.
Obviously more trades would have occurred successfully but lets not enhance the trade structure and keep things ultra basic. The trades work when spread is taken into account obviously
21 July
fxtime fxtime
A caveat to the scenario above.....anyone applying the time signal to other markets shouldn't as each market has its own quirks. EURGBP is slower and can be tested real time easilly likewise for development of real time systems. Once it is robust consider only then on how to apply to its fellow correlated fx pairings such as the eurusd or cable.
21 July
Qi2 Qi2
fxtime, what is standard deviation model on GBPUSD? I am trying to polish my model and I think I weight my EURGBP to heavily.
21 July
Qi2 Qi2
I played with shorter time frames last night and this morning (Vancouver time) after re-reading Quant's comment and it seems to work, but I need to modify my rules, as it trades a lot, for tiny pips
21 July
fxtime fxtime
I only trade the eurgbp as a result of the eurusd and gbpusd as described above. Whilst I only earn 44pips on average it is a higher probability.
The standard deviation model I posted was an intraday version but you have greater accuracy on a 3 day std dev. I will find the article and post here for you.
21 July
fxtime fxtime
Well done at the profits too.....there is a pay-off between probability and pips gained. Look for the minimum moves that typically occur and the highest probability value and you will find you can trade larger stakes for a shorter time frame for a nigh on ensured profit....something you will find in quite a few of my earlier articles. Always seek the fast safer money etc.
21 July
Qi2 Qi2
44 pips in a high probability system is fantastic, simple increase the position size and life is fabulous!
21 July
fxtime fxtime
Thx mate :-)
Attached is a corrupted version of my standard deviation systems.....you set at the market close etc but have a read and see what you think. Usually these work well before the USA open ! There are some onsite who trade these daily and will give you feedback on its veracity.
https://www.tradingfloor.com/posts/adding-bell-curves-and-whistles-to-your-trading-strategy-7163807
Remember all the strategies overlay each other if you want a tighter trade model.
21 July
Qi2 Qi2
Great thanks! I will have a read :)
21 July
zefy zefy
It is brilliant article and there are brilliant comments posted. I have so much enjoyed following the discussion.
Strategy overlays are really powerful, well worth to take time to study and test.
21 July
fxtime fxtime
Thanks Zefy :-)
Can I ask mate do you also trade equities?
21 July
zefy zefy
Not that much equities trading. My stock account is mainly long term dividend plays like Altria and iShares PFF and then some long term tech picks from Scandinavia like Finnish Comptel and Bittium and Napatech from Norway. And some lottery tickets from semiconductor stocks LOL.

I used to have system scanning through huge amount of stocks and calculating momentum etc parameters but the outcome did not justify the effort so I gave up.
21 July
fxtime fxtime
LOL....I know what you mean about lottery picking of semi-conductor stocks LOL. I was going to ask you try a theory but will await next weeks article first then if you are interested i can fwd to you.
21 July
zefy zefy
Yeah, let's do so.
21 July
fxtrades fxtrades
fxtime your articles educational and informative. Where can I get "Sale of Statistical Trading Models" mentioned on your profile?
21 July
fxtime fxtime
Normally those ''models'' are for commercial accounts and they are four figure prices and made bespoke to my clients requirements....I doubt they would be useful to sole traders in all honesty as I give strategies that are free and also robust to back test and real time trading. Likewise updates are given freely and in real time so in all honesty just working through my weekly strategies and overlay them and you will have a workable trading model on various time frames with all necessary data for free.
The client statistical models are mainly for neutralising forex exposure to permit accurate pricing structures or cost basis structures. The remainder of statistical models/strategies are for very large scale accounts. Hope this helps?
22 July
fxtrades fxtrades
Thank you so much for the candor and offer to help. However, I tried to spare you the trouble of explaining to me how to implement the strategy manually. What is the starting-time and how to quantify the ratios etc a detailed trade example will be very much appreciated.
22 July
fxtime fxtime
fxtrades the attatched link is where I started the series for this strategy and the commentary in the link give other details that are relevent to the system. When you read the 6 line system you will see subtle differences between eurusd and gbpusd and the suggested outcome for eurgbp movement. I will not go into the reasons of correlation and rates of change models as they are explained in an earlier article however a trade signal occurs when the ratio between the amount of pips the eurousd and cable have individually moved for the day exceeds 2.1 times the other. At the moment (now) we see the eur has risen 3pips but the cable has risen 14pips thus the latter is rallying faster by a ratio of 4.67 times and the algo suggestion has proved correct the eurgbp has fallen currently by 9pips and as you are only trading the eurgbp that is your profit. This is a concept article which is new to tradingfloor and it will be developed on.
22 July
fxtime fxtime
fxtrades you need to overlay weekly articles to build a stronger/tighter trade concept that is suitable for you. Honestly starting a algo subject is entirely new for Tradingfloor and this is the first of a series of posts and over the weeks you will see new opportunities whether it is for manual trading or autofunction. Since January each week I have posted manual trade strategies with data etc and charting along with real time updates and again real time charting. So there is plenty of history onsite to work back through :-)
22 July
fxtime fxtime
Quant your request for a simplistic ''robot'' result....yesterday my suggested ultra basic ''robot'' traded twice following the rules suggested and would have again today completed two more so would thus be turned off. Totals now equal 4 trades opened todate and all successful.
22 July
fxtime fxtime
The above can be enhanced with the use of a probability cone imho.
22 July
fxtime fxtime
Time stamp change on original algo above. Only 21pips made earlier before ratio stop triggered. Ratios turned rapidly on gbpusd beyond the 2.1 to 1 values and reversed the trade for a further +11 this time to the long side for eurgbp. I must stress I am only trading the eurgbp here and it is the ratio between the cable and eurusd that determines my eurgbp trade.
22 July
fxtime fxtime
Wow that was quite a eurgbp move and ROC curve peaked so covered now for +19 as market seems to have ''over-reacted/overheated'' perhaps as ratios are too wide now. Now flat for a total +40....as this is a Friday I have now de-activated the function as profits have been booked and I do not want any late opening trades !
22 July
fxtime fxtime
Interesting to look at the eurgbp now (@11:50 bst)....the daily average of +44 would have been achieved easilly but the ratio distortion is now reaching 9:1 which implies a potential stalling or retrace is imminent. Still flat and will remain on the sidelines but interesting to watch none the less.
Cable moves would have been caught via std dev model obviously.
22 July
fxtrades fxtrades
fxtime .. Apologies to bug you again. I read the article related to this strategy as well as the daily routine and many others but still can't get a clear understanding of the mechanics of the trade setup and signal. Are the ratios based on daily, 30 or 60 min bars? What are the trigger ratios? Is it >2 for all conditions? This strategy intrigued because I erroneously used to think that such inefficiencies are arbitraged away short order.
23 July
fxtime fxtime
This article is to get the concept over and it can work on most time frames but the shorter the time frame the lesser gain.....also if you read the commentary you will see the trigger ratios I prefer but I am trying give the basics as with all the prior articles for you to build a strategy that fits with your own risk aversion. Normally I operate two trade strategies for this on a EoD basis and hourly using time stamp points.
Sadly I cannot find the link for the EoD trade scenario but it utilises a simple excel spreadsheet but will require you to do some scrolling back I am afraid but that gives greater detail with the spreadsheet charting and values too. Remember also whilst I use a ratio value for the trade entry I use the same ratio but a tighter value as the trailing stop. If you read the six line programme it gives every permutation....just play with the maths measuring cable against spot eurusd and from that determine where the eurgbp will move.
23 July
fxtime fxtime
To be clear you measure the ratio between the current day pips movement of one fx pairing against another to determine eurgbp direction and the algo above will tell you which direction to expect. Pay close attention to the 6 lines as each line gives a different market event and you need to ensure your charts match one of those lines.....virtually everyday it will trigger.
23 July
fxtime fxtime
Attached is the screengrab from the EoD posting and my chart is dated 13thMay when it was forwarded to Saxo so the article would have been anything upto 10days after that which may help your search?
My current excel spreadsheets have slightly changed/enhanced since the posting but that is what happens to algo's all the time....endless minor tweaks to keep their ''real time'' values.
23 July
fxtrades fxtrades
fxtime thank you and have a nice weekend.
25 July
fxtime fxtime
Quant...above I suggested an ultra basic auto trade function on eurgbp using the close price as a trigger entry and only seeking net +5 over a 24hr period....max 2 trades permitted etc. Still it continues to work ! Clearly my 6 line algo over complicates things LOL.
15 August
kom75 kom75
Hi Fxtime, is 7am-7pm ok to run your 6 line algo or would you limit trade time further? Also time stamp for 7am-7pm is daily close at 10pm or 7am?
15 August
fxtime fxtime
7am - 7pm is OK and will work.
9pm BST is my close price point fwiw.
The main issue with the algo is the consistency....your 7am to 7pm is good as the close value is an illiquid point in the market place. If you are using an algo programme then I would suggest make the trade time range 24hrs and reste the programme values at 7pm or 9pm each evening.
However if you are manually working the algo then your 7am - 7pm is optimum.
15 August
kom75 kom75
Thanks, it will be algo. You mentioned in your article to never run 24hrs trade, and run only real time hours only, that's why i put 7am-7pm range;)
15 August
fxtime fxtime
The article relates to ''first'' algo scenarios...eg a base level to work from and is easier to control / reset. All the articles I have posted are baseline levels to work from. My own trade set ups use illiquid time fixing points (evening) and run continuously....sorry for the confusion.
15 August
kom75 kom75
thanks for clarification
15 August
fxtime fxtime
LOL....kom75 I think I would be a useless teacher LOL. I do provide bayes stats models to various fx employees and when I look at the blank faces staring back at me around a desk it is like everyone has gone into ''screen saver'' mode....they understand the money sure enough but take them outside their comfort trading box is always shock to them LOL.
15 August
kom75 kom75
Lol, fortunately I don't have a mirror in front of me when I read your articles Lol
15 August
kom75 kom75
Btw. Do you have a same set up for audjpy?
15 August
fxtime fxtime
Apologies for the delay in replying;
Used USDJPY, AUDUSD as your ratio basis to trade the audjpy...this is definately a market that uses illiquid time stamps for your reset point as far more movement :-)
15 August
kom75 kom75
Thanks:)
22 September
Qi2 Qi2
And just over two months after your article, the beta algo has arrived and is running it theory :)
22 September
fxtime fxtime
Seriously mate well done...the algo looks stupidly simple as it only has six lines but I know only too well how much work is required to get a programme up and running. IF you have the algo continuously running then (sorry if I am stating the obvious) make sure you have a reset point or time stamp/reference point in operation too otherwise the algo will introduce its own ''skew'' to the results.
29 September
Qi2 Qi2
This EURGBP theory of yours is a money maker, I have not had a losing trade on this system since the algo arrived a week ago, just saying, your rock!!!!
29 September
Qi2 Qi2
I only trade it from 1:30 pm GMT to 3:05 pm GMT, minimum 10 pips, more often than not, it will earn 18 pips, today it was 25 pips and the max I have earned in this timeframe on your model is 43 pips :)
29 September
fxtime fxtime
Yeah well done mate...I know only too well how long it takes to build the programme so you should have a new boat soon :-)
29 September
Qi2 Qi2
Haha, I'm thinking I'll buy a place in the south of France, I spend a few weeks each year in Villefranche, have been going every year since 1995.
29 September
fxtime fxtime
Reckon you could afford to buy France soon LOL.
29 September
fxtime fxtime
I had to comment again as i have never had a 100 comment listing before LOL...Qi2 have you considered dual programmes running the same programme but from different time stamps? When the USA opens the ratios move quickly but European time frames mean this is lost in the initial trade structure.
29 September
Qi2 Qi2
I am working through this idea right now, as US open does tend to move to quickly, generating to many trades. I need to really work my way through this model. Love to hear your thoughts on this... and I am reading through your original posting, trying to learn the suggested time stamp
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