Can your strategy scale up?

Discussion in 'Strategy Building' started by jimmy, Oct 13, 2005.

  1. jimmy


    I am interested to find traders who have a strategy that's been making money, but could have made much more if scaled up on a large stock universe. A day trader may follow no more than a few stocks just due to the natural limits of a human brain; but his strategy may be applicable to many more stocks. A program, on the other hand, could follow hundreds of stocks easily. I believe most traders view their trading skills more like magic than something that can be formalized; otherwise the market would be just a competition of blackboxes. If you think that at least some parts of your (profitable) strategy can be automated, please read on.

    I personally believe that a good day trader will usually beat a program in a trade; but the program can beat him ultimately on volume, as it may follow hundreds or thousands of names. It may make less money per trade, but much more overall. So a working strategy that consistently makes you money in manual trading can produce multifold profits if implemented in such a system.

    I have created my own blackbox (I have a strong background in technology). It has a back testing component in addition to order routing via a broker API. I 've been using it successfully for about half a year, trading a prop account. I have been staying profitable, however the efficiency is not as high as I would like it to be.

    My blackbox trades about 70-100 listed stocks a day, executing 200-400 positions a day fully automatically something I would not be able to do. Over time, I have made the execution pretty intelligent, so I don't have to be glued to the screen myself. It's pure day trading, I don't hold onto positions. Technically it can run a few hundred stocks at a time, but I would like to raise my average p&l first.

    The backtesting system takes in complete set of market data every day from NYSE, up to the millisecond; it allows me to validate different ideas on a large array of real data.

    In case you are interested to share ideas and possibly collaborate, I can provide more details. However, I would need to be sure that:
    - you trade for a living and are able to make money on trading;
    - you are looking to increase your gains by applying your strategy to a much larger number of stocks.

    Please send me a private message if you answer positively to both questions and would be interested to continue this conversation.

  2. jimmy,

    This is one of the nuttiest pieces I have come across the last couple of weeks at ET's.
  3. I would guess that strategies that depend more on execution would be more difficult to scale up.
  4. jimmy


    Do you mean manual execution? I agree. I also think that it would be hard to scale up a strategy that is tied to a particular sector or a stock or a specialist. My current strategy is pretty generic and therefore applicable to numerous stocks. But the more generic your strategy gets, the more its quality declines (i.e., gains per individual stock). So now I am working on improving my strategy or mixing it with another one.