Fully automated futures trading

Discussion in 'Journals' started by globalarbtrader, Feb 11, 2015.

  1. I think you're right to an extent.

    It's mentally definitely very difficult to trade a positive skew strategy. To take an extreme example, suppose you have a Taleb style tail protect strategy which returns 100% every 10 years, and -5% every year. That is a positive expectation, so worth trading outright. In practice you'd really struggle mentally if that was your only strategy. It only makes sense if you had say a 40% exposure to that, and a 60% exposure to a stocks portfolio, such that the hedge gave you a zero loss in the every decade disaster. But even then you'd be cursing yourself for 9 out of 10 years for buying this insurance.

    On the contrary its very easy mentally to trade a negative skew strategy, and take profits every day. And then every year, or every 5 years, or every 10 years depending on the strategy; you get murdered. Mentally that is easier; at least 99% of the time.

    For a given sharpe ratio you can to an extent choose whether you get that return as positive or negative skew; lots of small up days or occasional large up days (though negative skew tends to have higher sharpe ratio, as thats a poor judge of returns with big tails).

    I know if I backtest only taking the highest sharpe ratio opportunities, then I'd reduce my sharpe ratio. I guess this might be a factor of the length of time I'm generally holding positions; as I'm not familiar with intra day trading I don't really know. However I think it may also be a function of trading style. If you're trend following, you have to cast a lot of lines, hoping one will bite and become a decent trend, taking small losses on the rest. If you wait until it already is a decent trend you've already missed half the profits. If you're mean reverting or relative value, then it often makes sense to wait until the mispricing is higher.

    (There are also higher trading costs if you don't 'leg into' positions but thats a different story)

    My own strategy is reasonably balanced, in the sense that its a combination of negative skew carry (and a bit of relative value) and positive skew trend following. Also, and perhaps that is the most important thing, I only trade a minority of my net worth. The rest is in dividend paying stocks and bonds. From a sharpe ratio perspective this is inefficient. However mentally having the cushion of those dividends coming in every year and not having to touch my trading capital, is more comforting than having to dip into trading capital in loss making years to pay living costs.

    I am however interested in this comment:

    "The successful traders I know all seem to have an undesirably high emotional exposure to their P&L"

    ... which goes against most 'market folklore', that the most succesful traders are those who can gain a degree of emotional detachment. I haven't spent enough time hanging around succesful discretionary traders to know if that is really true. I know plenty of hopeless discretionary traders, including myself, who suffer mental anguish when they lose money; which is why I think that system trading is better for the vast majority of people.

     
    #101     Apr 7, 2015
    samuel11 likes this.
  2. Trades since I last posted (26th March):
    Code:
             code contractid     filled_datetime  filledtrade  filledprice
    3108      ASX     201506 2015-03-27 01:50:32           -1  5925.000000
    3136      AUD     201506 2015-03-27 14:13:14           -1     0.774800
    3205      AUD     201506 2015-04-02 02:01:25           -1     0.755400
    3154     AUS3     201506 2015-03-30 01:07:14            1    98.300000
    3166     AUS3     201506 2015-03-30 02:17:19            1    98.300000
    3157  AUSSTIR     201606 2015-03-30 01:24:39           -7    98.080000
    3235  AUSSTIR     201606 2015-04-08 01:36:36            1    98.060000
    3109     BOBL     201506 2015-03-27 07:32:33            1   129.410000
    3127     BOBL     201506 2015-03-27 14:09:42            2   129.410000
    3193     BOBL     201506 2015-04-01 07:34:13           -1   129.340000
    3169     BUND     201506 2015-03-30 07:20:24            1   158.590000
    3124     CORN     201512 2015-03-27 14:06:44           -3   413.250000
    3187     CORN     201512 2015-03-31 17:54:43            1   403.750000
    3214     CORN     201512 2015-04-06 14:30:00            1   412.000000
    3223  EDOLLAR     201809 2015-04-07 12:14:48            1    97.880000
    3178  FEEDCOW     201503 2015-03-30 17:21:51           -1   216.710000
    3145   GAS_US     201506 2015-03-27 14:16:53           -1     2.693000
    3202   GAS_US     201506 2015-04-01 12:16:57           -1     2.679000
    3110      GBP     201506 2015-03-27 07:45:50           -1     1.480500
    3196      GBP     201506 2015-04-01 11:15:11           -1     1.475700
    3238      GBP     201506 2015-04-08 06:11:47            1     1.483100
    3199     GOLD     201506 2015-04-01 12:11:16           -1  1183.500000
    3211     GOLD     201506 2015-04-02 13:10:30            1  1205.100000
    3121      JPY     201506 2015-03-27 13:28:10           -2     0.008403
    3160      KR3     201506 2015-03-30 01:01:36           -1   109.330000
    3151  LIVECOW     201510 2015-03-27 15:31:28           -1   151.700000
    3226  LIVECOW     201510 2015-04-07 15:41:44           -1   149.850000
    3139      MXP     201506 2015-03-27 14:14:57           -4     0.065820
    3190      MXP     201506 2015-04-01 02:04:06           -1     0.065240
    3093   NASDAQ     201506 2015-03-25 16:01:21           -1  4368.000000
    3148      NZD     201506 2015-03-27 14:20:47           -1     0.751900
    3241      OAT     201506 2015-04-08 10:56:17           -1   156.410000
    3181     PLAT     201504 2015-03-31 13:51:28            1  1128.100000
    3184     PLAT     201507 2015-03-31 13:51:28           -1  1129.000000
    3208     PLAT     201507 2015-04-02 12:13:33            1  1156.900000
    3133      SMI     201506 2015-03-27 14:12:02            1  8982.000000
    3094    SP500     201506 2015-03-25 16:04:35           -1  2067.000000
    3274    SP500     201506 2015-04-08 14:14:05            1  2073.000000
    3283      US2     201506 2015-04-09 14:17:25            1   109.640625
    3112      V2X     201506 2015-03-27 08:24:00           -2    21.800000
    3130      V2X     201506 2015-03-27 14:12:54           -7    22.100000
    3172      V2X     201506 2015-03-30 08:53:12           -1    21.550000
    3175      V2X     201506 2015-03-30 11:22:46           -1    21.700000
    3220      V2X     201506 2015-04-07 14:21:50           -1    21.300000
    3286      V2X     201506 2015-04-10 09:03:52           -1    20.600000
    3106    WHEAT     201512 2015-03-26 16:33:50           -1   532.000000
    
    Total slippage: process -611.080000; bidask 320.640000; execution -136.790000; all trading 183.880000; grand total -441.090000
    
    Managed to pay about a quarter of the spread on average, rather than half.

    Current positions:

    Code:
           code contractid  positions   Lock WrongContract InFwdNotRoll
    29      AUD     201506         -2  False         False        False
    18    AUS10     201506          1  False         False        False
    27     AUS3     201506          5  False         False        False
    23  AUSSTIR     201606          5  False         False        False
    17     BOBL     201506          3  False         False        False
    15      BTP     201506          1  False         False        False
    24     BUND     201506          2  False         False        False
    22      CAC     201504          1  False         False        False
    20     CORN     201512         -4  False         False        False
    8   CRUDE_W     201512         -1  False         False        False
    28  EDOLLAR     201809          5  False         False        False
    0   EUROSTX     201506         -9  False         False        False
    2      FTSE     201506         -2  False         False        False
    16   GAS_US     201506         -4  False         False        False
    14      GBP     201506         -2  False         False        False
    1       JPY     201506         -3  False         False        False
    25     KR10     201506          2  False         False        False
    26      KR3     201506          8  False         False        False
    3   LIVECOW     201510         -2  False         False        False
    5       MXP     201506         -5  False         False        False
    19      NZD     201506         -1  False         False        False
    21      SMI     201506          1  False         False        False
    11    SP500     201506          1  False         False        False
    13     US10     201506          1  False         False        False
    6       US2     201506          4  False         False        False
    4       US5     201506          2  False         False        False
    9       V2X     201506        -13  False         False        False
    12      V2X     201505         -5  False         False        False
    10      VIX     201505         -2  False         False        False
    7     WHEAT     201512         -2  False         False        False
    
    P&L in that period: £26,153
    To date: £337K
    Below HWM: £11.1K

    Decent profits in short VIX and GAS_US

    Expected risk: £5,575 per day

    Big shorts: GAS_US (risk £1800 a day), JPY, GBP, MXP, V2X, VIX (so long dollar, short volatility)
    Big longs: US2, AUS10, US10, US5, KR10, BUND, AUS3, KR3, SHATZ (yes.... all bonds)
     
    #102     Apr 10, 2015
  3. samuel11

    samuel11

    12 V2X 201505 -5 False False False
    10 VIX 201505 -2 False False False

    What is the difference between these 2? I recognize the May VIX Futures in the first line, so what is the second line? Thanks
     
    #103     Apr 10, 2015
    Michael likes this.
  4. The first line is the "European VIX" May contract. The second line is the US VIX, also May.

    Note that the VIX has about 9 times the contract value of the V2X, and about 8 times the risk.
     
    #104     Apr 10, 2015
  5. samuel11

    samuel11

    thank you
     
    #105     Apr 10, 2015
  6. Thanks for your interesting post.

    I'm not saying that they lose their cool when down on the day or week, or that it affects their judgement; just that negative periods (and the potential for negative periods) affects them more than they would like. And the decisions taken to mitigate this emotional exposure lead to worse returns than would otherwise be achieved. For example, both taking time off and trading smaller positions are detrimental to equity growth but seem to be required in order to maintain the necessary emotional balance.

    It is individual to each trader so not something we could categorise as strictly true or false beyond the broad generalisation that (most) people do not seem to enjoy losing money. As for any mental anguish it could create - I don't see why it would be different whether the losses occurred due to manual or automated trading. Though I agree that most people do not have the appropriate personality to be traders.


    This is almost an example of what I mean. Richard Thaler (U Chicago) termed this "mental accounting". However in your case I'm not sure your emotional exposure to P&L could be termed undesirable, unless a down year is going to cause you anxiety.

    Your posts remind me a little of an ex-IB chap I know who retired in his late 30s. Work and particularly his colleagues began to grate on him; the culture/attitudes, some people being less than honest with clients etc, and what he termed a myopic obsession with money and status. He was far happier with his freedom and time after leaving work than he ever was grousing about bonuses and chasing new toys.

    Given the diminishing marginal utility of money, choosing to trade at a level where it can be challenging and worthwhile but avoid risking your financial security is sensible. What you are protecting is the freedom and time money can buy. And with this foundation in place, an automated trend following strategy which might be in drawdown for more than a week or so could be a perfectly appropriate choice.

    Unless you're in the low latency space I'd be very surprised if there were any short term trading strategies which could be fully automated. For those using trading to bootstrap, short term futures strategies can make the most of the ability to leverage, reduce risk by being in the market for short periods of time and always flat at the end of each session. Of course the % of net worth risked will reduce after capacity is reached and the surplus invested elsewhere.
     
    #106     Apr 10, 2015
  7. Report since April 10th


    Market moves:

    Big falls in Korean bonds (7 daily sigma move), Aussie rates, Italian bonds (greek contagion?); all of which unfortunately are longs. Equities and US bonds were up, Korean equities biggest riser, also rallies in currencies against the $ (again, not great, the end of the best trend of the last few months).

    P&L: MINUS 27, 763, or 6.9% of capital
    Biggest losses in GBP, KR10

    Drawdown is 9.4% of capital
    The average DD from simulation is 9.2%.
    The worst drawdown in live trading until now was 8.9%

    Trades since I last posted:

    Code:
             code contractid     filled_datetime  filledtrade  filledprice
    3298      AEX     201504 2015-04-13 08:10:43            1    506.40000
    3352      AEX     201504 2015-04-15 08:22:46           -1    506.10000
    3355      AEX     201505 2015-04-15 08:22:46            1    501.35000
    3409      AEX     201505 2015-04-17 16:30:48           -1    489.65000
    3289      ASX     201506 2015-04-13 01:30:00            1   5981.00000
    3454      ASX     201506 2015-04-20 01:47:25           -1   5796.00000
    3367      AUD     201506 2015-04-16 02:54:28            1      0.77410
    3394    AUS10     201506 2015-04-17 02:28:22            1     97.64000
    3448     AUS3     201506 2015-04-20 01:02:57           -1     98.20000
    3457     AUS3     201506 2015-04-20 02:10:00           -1     98.19000
    3397     BOBL     201506 2015-04-17 07:40:05            1    129.70000
    3331      CAC     201504 2015-04-14 13:53:35           -1   5223.00000
    3334      CAC     201505 2015-04-14 13:53:35            1   5163.00000
    3370      CAC     201505 2015-04-16 08:05:37            1   5172.50000
    3403      CAC     201505 2015-04-17 11:44:58           -1   5098.50000
    3361     CORN     201512 2015-04-15 14:30:01           -1    396.75000
    3406  CRUDE_W     201512 2015-04-17 12:13:09            1     61.10000
    3385  EDOLLAR     201809 2015-04-16 16:42:36            1     97.89000
    3445  EDOLLAR     201809 2015-04-17 19:14:41           -1     97.95500
    3316      EUR     201506 2015-04-14 02:16:36           -1      1.05920
    3391      EUR     201506 2015-04-16 19:42:31            1      1.08090
    3337  EUROSTX     201506 2015-04-14 16:00:23           -3   3702.00000
    3388   GAS_US     201506 2015-04-16 18:06:47            1      2.70400
    3292      GBP     201506 2015-04-13 01:38:28           -1      1.46340
    3364      GBP     201506 2015-04-15 19:16:24            1      1.48420
    3493     GOLD     201506 2015-04-23 12:09:53           -1   1188.30000
    3487     KR10     201506 2015-04-23 02:28:40           -1    124.64000
    3451      KR3     201506 2015-04-20 01:10:31           -1    109.59000
    3460      KR3     201506 2015-04-20 02:20:18           -1    109.58000
    3490      KR3     201506 2015-04-23 03:26:40           -1    109.39000
    3472  LEANHOG     201506 2015-04-20 15:05:00           -1     76.50000
    3418      MXP     201506 2015-04-17 18:47:36            1      0.06502
    3313   NASDAQ     201506 2015-04-13 14:54:23            1   4435.50000
    3412   NASDAQ     201506 2015-04-17 16:36:14           -1   4345.75000
    3502   NASDAQ     201506 2015-04-24 14:03:09            1   4512.50000
    3358      OAT     201506 2015-04-15 11:16:46            1    157.30000
    3499      OAT     201506 2015-04-24 11:51:35           -1    156.88000
    3415  SOYBEAN     201511 2015-04-17 18:18:26           -1    956.00000
    3307      V2X     201505 2015-04-13 14:52:42            5     19.60000
    3310      V2X     201506 2015-04-13 14:52:42           -5     20.00000
    3463      V2X     201506 2015-04-20 08:06:05            4     22.15000
    3478      V2X     201506 2015-04-22 11:50:15            1     21.85000
    3496      V2X     201506 2015-04-24 08:10:54            2     21.75000
    3325      VIX     201505 2015-04-14 13:40:49            2     16.05000
    3328      VIX     201506 2015-04-14 13:41:13           -2     16.95000
    3400      VIX     201506 2015-04-17 10:18:53           -1     16.60000
    
    
    Total slippage £175.

    Positions:

    Code:
           code contractid  positions 
          AUD     201506         -1 
       AUS10     201506          2 
         AUS3     201506          3  
      AUSSTIR     201606          5 
         BOBL     201506          4 
          BTP     201506          1 
         BUND     201506          2 
        CAC     201505          1 
        CORN     201512         -5 
      EDOLLAR     201809          5 
      EUROSTX     201506        -12 
         FTSE     201506         -2 
       GAS_US     201506         -3 
          GBP     201506         -2 
         GOLD     201506         -1 
          JPY     201506         -3  
         KR10     201506          1 
          KR3     201506          5  
      LEANHOG     201506         -1 
       LIVECOW     201510         -2 
           MXP     201506         -4  
        NASDAQ     201506          1 
          NZD     201506         -1
          SMI     201506          1  
      SOYBEAN     201511         -1
        SP500     201506          1 
         US10     201506          1 
          US2     201506          4  
           US5     201506          2  
          V2X     201506        -11 
          VIX     201506         -3  
        WHEAT     201512         -2 
    


    Risk: Overall risk is low, as you'd expect given losses, £4500 per day target.

    Big shorts in GAS, JPY, GBP, GOLD, LIVECOW.
    Big longs in SMI, BUND, NASDAQ, Eurodollar, SP500.
     
    #107     Apr 25, 2015
  8. jj1111

    jj1111

    I enjoy reading how almost callously you regard your losses lol.
     
    #108     Apr 25, 2015
  9. If you can't do that, its very hard to trade...

    One trick I found is to only look at drawdown in %. Makes it easier than cash terms.

    I admit it would be harder if last financial year hadn't been so amazing.
     
    #109     Apr 25, 2015
    Ghost_of_Blotto likes this.
  10. I should add that although I paid slippage of £175, I would have paid £240 had I paid half the bid/ask spread each time (i.e. just crossed the spread) which is what I assume I do in simulation. It doesn't make sense to include a figure like £175 in without explaining the context and what my expectations are.
     
    #110     Apr 27, 2015