Data Driven Quantitative Trading Strategy Using intra-day and end of day historical price data

Discussion in 'Strategy Building' started by PIFFIPTradingStrategies, Oct 21, 2014.

  1. Hi All,

    I would like to share my work on Data Driven Quantitative Trading Strategy Using intra-day and end of day historical price data. I welcome your thoughts / suggestions.

    Thanks
    Note - Due to size restriction per thread, I have split this in to 2 threads
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    Welcome to PIFFIP Trading Strategy.


    Why use a Trading Strategy?

    · Trading Strategies are predefined rules that helps in making emotion free trading decision making, that helps overcome below mentioned challenges.

    · Trader trading without trading strategy is directionless and is shooting in dark and will soon run out of his ammunition.

    · Markets will have different mood swings and volatility which can impact human decision making. As factors such as panic, fear or greed influence the human decisions. Trading Strategies are like night vision glass in darkness that provides direction in trading decisions.

    · There is limitation to amount of time a human can remain alert to make sensible business decision in timely manner and not make any mistake or human errors.


    What is PIFFIP Trading Strategy?

    · PIFFIP Trading Strategy is Data Driven Quantitative Trading Strategy.


    What does PIFFIP Trading Strategy do?

    · PIFFIP uses the end of day market price data to derive the price pattern and analyzes the past historical price data to check if similar price pattern has occurred in the past. If yes, It predicts future price and based on price trend it provides for either buy or sell position to be taken for the predicted price.


    What is meant by PIFFIP?

    · PIFFIP is an acronym for "Past Is Future, Future Is Past". Since PIFFIP uses Past Data to Predict Future price and trend, It acts as a link between past and future hence PIFFIP.


    What is the usage of PIFFIP Trading Strategy?

    · PIFFIP Trading Strategy can be used for systematic quantitative trading.


    Why PIFFIP uses Data Driven Approach?

    · Markets are believed to be following random walk trajectory which cannot be predicted. However at times market follows the path that it has already followed in past. If there is a way to identify such repetition of paths and relate it to past pricing behaviour, it is possible to predict the market movement and make profitable trades.

    · Market price data (current as well as historic) are best source of information to do such analysis of pricing behavior to identify patterns in current market trend and relate it with past trend to predict the price movement and the trend signal to place buy or sell orders to make profitable trades.

    · Usage of Data Driven Approach has made future more optimistic, bright and confidant. The reason being every passing trading day adds more data resulting in more patterns that can be discovered in future that could be leveraged to do trading with confidence.


    How PIFFIP is designed and developed?

    · PIFFIP Trading Strategy is designed and developed using MS Excel.


    Why PIFFIP uses End of day data and not Intra-day data?

    · I have designed PIFFIP Trading Strategy for both Intra-day data as well as End of day data, however my current focus is on using PIFFIP Trading strategy with End of day data.

    · PIFFIP Trading Strategy based on end of day data does not require much investment in terms of automated trading programs, hardware, software etc and does not require full time trading. Maximum it generates one prediction for a day which can be entered by a trader any time before the start of the market. Also end of day data is relatively is easy to get compared to intra-day data.

    · PIFFIP Trading Strategy using Intra-day data will require lot of investment in terms of automated programs, supporting hardware, software and subscriptions to intra-day data which can be costly proposition and requires full time attention on trading. I might focus on PIFFIP Trading Strategy based on Intra-day data in future.


    What are other features of PIFFIP Trading Strategy?

    · PIFFIP Trading Strategy provides for Back testing functionality.

    · While back testing it reads only the current and previous data for prediction and then compares the same with actual price to confirm if the predicted price is within the range of actual price and trade would have happened or not?

    · Back testing also provides information on number of predictions that has happened till date, number of prediction that converted into trades, maximum number of open positions on either side (Buy or Sell). This provides for likely working capital and quantity of stocks that may be required to hold.

    · Based on frequency of predictions and trades, It also helps decide whether to go for delivery based trading or futures based trading (for stocks)


    What type of Instruments can be used for Trading using PIFFIP Trading Strategy?

    · PIFFIP Trading Strategy is found to be ideal for Equity Cash (Delivery) based system for those instruments that has less historical data or the price patterns are such that they are getting repeated frequently which causes less predictions and less frequency of trades.

    · However, PIFFIP Trading Strategy can be used with any type of Instrument (Equity, Index, Futures, Currencies, Commodities) provided there is sufficient historical price data available. It is advisable to back test an instrument to see how it has performed in past in terms of number of predictions, Price predictions within actual price to know number of trades that would have happened, profit or loss, maximum open positions etc.

    · It is observed based on some sample back testing that for Stocks (Equities) it is better to do delivery (cash) based positional trading as frequency of trades are less. While for index futures trading is advisable as trade frequency is observed to be on higher side. However all depends on quantum and quality of historical data.

    · For those Index where frequency of trade is less, it can be used for Cash (Delivery) based system to trade ETF of that Index.



    For a given instrument, Will PIFFIP Trading Strategy provide prediction for every day?

    · PIFFIP Trading Strategy can provide prediction only if similar price pattern has happened in the past. If such price pattern has not happened in the past then there will not be any prediction.

    · However when same price pattern will occur in future, the current price pattern will act as a input to predict the future price.


    For a given prediction using PIFFIP Trading Strategy, Will every prediction get converted in to trades?

    · PIFFIP Trading Strategy is Low or Medium Frequency Trading Strategy based on Quantum of historical data that is available.

    · The prediction in PIFFIP Trading Strategy is provided based on past behavior of price for a given pattern. It is not necessary that all predictions will result in trades. Market does not oblige every time in same way. The force of volatility might not bring predicted price within the range of actual price in which case no trades will happen.

    · However when same price pattern happens again in future, PIFFIP Trading Strategy will use both past as well as the current price data whose prediction did not result in trade to predict the future price which brings future price prediction more closer to actual price range.


    How PIFFIP Trading Strategy decides on Buy or Sell decision?

    · Once a price prediction is done, PIFFIP trading strategy does trend analysis based on the prices to decide on Buy or Sell order.


    Will there be both Buy and Sell Orders for Same day price prediction?

    · Although PIFFIP Trading Strategy provides price prediction for both sides, it provides either of Buy or Sell decision but not both. Predicted High price is used if Sell decision is provided, and Low price is used if Buy decision is provided.




    Is there any limit in PIFFIP Trading Strategy to place on maximum number of trades on either side?

    · There is no limit in PIFFIP Trading Strategy on number of trades on either side. Till it finds the price trend in one direction, it keeps predicting orders for that side and accumulates the position whenever trade happens.


    When will PIFFIP Trading Strategy close all the open positions?

    · When PIFFIP Trading Strategy identifies trend reversal, it predicts order for other side and all open positions are expected to be closed at the predicted price. It might be possible the open positions may not close immediately on trend reversal as predicted price may not have fallen in actual price range. In such cases open positions will get closed at later date in future when predicted price on other side falls within actual price range.




    Disclaimer

    Please back test and analyse the Past performance to confirm the suitability of the PIFFIP trading strategy for your trading needs. Past performance may not assure similar performance in future due to dynamic market behavior. I don't take any responsibility for any losses due to any reason.
     
  2. Continuation from previous post...

    What is the stop loss mechanism in PIFFIP Trading Strategy?

    · Noise and Price volatility in market causes many stop losses to trigger and close the potential profit making trades. To take care of this challenge, There is no fixed stop loss kept in PIFFIP Trading Strategy. PIFFIP Trading Strategy uses Price trend and it continues to hold the positions till the trend continues in that direction. There may be price fluctuations but if it does not confirm trend reversal, the open positions are not closed. Once the price trend reversal is confirmed, PIFFIP predicts the price for the other side at which all open positions are expected to be closed. The resulting losses (if any) for closure of open positions due to price reversal is the stop loss.


    How PIFFIP Trading Strategy takes care of noise and volatility in market prices?

    · Noise and volatility creates an impression of trend reversal. PIFFIP Trading strategy uses multiple days of data to identify the price patterns and to confirm the trend reversal. This removes certain amount of noise that causes unnecessary closure of open positions.


    When PIFFIP Trading Strategy should not be used?

    · PIFFIP Trading Strategy should not be used in following scenarios

    o If there is not sufficient historical price data or

    o If the instrument prices are rigged or

    o If the underlying historical data is not clean and

    o If there is un-adjusted data for bonus and splits.

    o if there are any limits enforced on number of trades or number of open positions

    o If there is not much movement in market price of the instrument e.g. flattish trend


    Is there any risk in PIFFIP Trading Strategy?

    · PIFFIP Trading Strategy should be back tested on the instrument that is planned for trading to confirm the past performance. However being dynamic nature of markets, past performance may not necessarily repeat in future so there is always a risk.


    Is PIFFIP Trading Strategy a Profitable Trading Strategy?

    · PIFFIP Trading Strategy should be back tested on the instrument that is planned for trading to confirm the gross profit / loss and net profit / loss in the past. However being dynamic nature of markets, past performance may not necessarily repeat in future so there is always a risk. Also there will be some trades which may result in losses.

    · PIFFIP Trading strategy does not count of expenses and brokerage as it varies from case to case. When calculating the profit or loss, expenses and brokerage should be factored in separately.


    Is PIFFIP Trading Strategy for Sale?

    · PIFFIP Trading Strategy is not for sale. The objective of this web site is to create awareness and interest in PIFFIP Trading Strategy.


    What are your goals for PIFFIP Trading Strategy?

    · My short term goal is to explore using PIFFIP Trading Strategy based on end of day historical price data with any interested trading company.

    · My long term goal is to have my own trading company to trade using PIFFIP Trading Strategy based on intra-day and End of day historical price data.


    How much time it has taken to design and develop PIFFIP Trading Strategy?

    · It has taken few years for me to come out with PIFFIP trading strategy to reach at current stage. Although the effort has not been full time, I have spent many evenings and weekends working on this.


    Is PIFFIP Trading Strategy in its final avatar?

    · There is always scope for improvements and I always look out for how to improve it find more price patterns and more accurate predictions and trend confirmations. However I have reached a stage where in without tweaking any parameter, I am able to use the strategy on quality historical data of Equity, Index, Futures, Currencies and commodities and overall back test results are positive.


    Has PIFFIP trading strategy been used in any real life trading?

    · PIFFIP Trading requires Trading Capital to trade. I don't have the required funds to do that kind of trading so I have not been able to use it in real life trading yet but I hope this status will change soon.


    Is PIFFIP Trading Strategy a copyright?

    · I retain all the rights on the logic that I have created and used in PIFFIP Trading Strategy. I don't have formal copyright on name PIFFIP but I might do it in future.


    Do you have any back testing sample run?

    · Below is the summary of the sample back test that I have done.
    (could not paste the picture)

    Disclaimer

    Please back test and analyse the Past performance to confirm the suitability of the PIFFIP trading strategy for your trading needs. Past performance may not assure similar performance in future due to dynamic market behavior. I don't take any responsibility for any losses due to any reason.
     
    Last edited by a moderator: Oct 22, 2014
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  4. Sergio77

    Sergio77

    "· PIFFIP uses the end of day market price data to derive the price pattern and analyzes the past historical price data to check if similar price pattern has occurred in the past. If yes, It predicts future price and based on price trend it provides for either buy or sell position to be taken for the predicted price."

    Based don how many trades from the past?
     
  5. Hi Serigo77,

    The Total count of records column is the total number of trades in the past.

    Thanks
     
  6. Note - The prediction and number of trades are dependent on price pattern key which can be made strong or weak. Stronger the key lesser the predictions and trades. Weaker the key more predictions and more trades. However, it is observed that with stronger key number of open positions and profitability is higher while with weaker key number of open positions and profitability is lower. For Cash / Delivery based trading a strong key will help while for futures based trading weaker key will help.
     
  7. jharmon

    jharmon

    wat
     
  8. I created a short summary video in case anyone did not have time to read through whole content
     
  9. jharmon

    jharmon

    No formulas. No real strategy. Motherhood statements. No backtesting results. Do you have anything to report other than motherhood statements?
     
  10. Below is itemized response to your comments
    No Formulas - They are confidential. I am sure no one would want to share that.
    No real strategy - The strategy is to use price patterns and price trend. Not sure why you feel this Data Driven approach is not a strategy?
    Motherhood statements - Quantitative approach is not a mainstream analysis approach like technical analysis. Although both are based on data, the approach, formulas and parameters differ, so I had to bit detailed on describing it.
    Back testing results - Back testing results are varying based on the price pattern key that can be strong or loose and also dependent on instrument. I did share the summary results earlier.
     
    #10     Nov 9, 2014