is it justified for me to concern about broker reverse engineering my strategy?

old coot · Jun 30, 2020

130% from mid March is not much of a trick.

zdreg · Jun 30, 2020

d08 said:
Of course they would. Nowadays many outsource the support. Once you contact with an issue, he'll go through all your trades and will figure it out. I'm sure it happens all the time but good luck proving anything.
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Every system needs to be tweaked. The broker will be unable to perform the tweaks. Since the system is not fully automated plus it is unproven the broker won't bother.

xandman · Jun 30, 2020

trend2009 said:
I developed a very simple strategy working on thin market, this strategy has been put in live trading on March. in 3.5 months, the return is 130% after around 10000 trades. the strategy is very simple. if the IT engineer in the broker spent 3 hours looking into my trading, he would figure out how I did it. if he competes with me, the strategy will cut profit at least in half.

below is the equity curve of the strategy.
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Is this NET return after commissions?

trend2009 · Jun 30, 2020

virtusa said:
You should care because of the fact that the expectancy is very important.
His average profit per trade in 100 trades is 100 times bigger than in 10,000 trades. So what you say is wrong.

If his profit is average over 10,000 trades 0.013%, it means that his profit at a 50% winning rate should be 0.026% if he would put a stop at 0.013%.
50% winning at 0.026% and losing 50% at 0.013% gives 0.013% expectancy without taking in consideration the commissions.

Trading the ES 0.013% equals about 0.39 points or 2 ticks. If he would put a stop at 2 ticks he will get stopped out most of the time in seconds.

If he would make his return in 100 trades things would look much better. Trading the ES 1.3% equals about 39 points or 156 ticks. If he would put a stop at 156 ticks he will probably never be stopped out.It would change/improve his risk profile massively.
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you did not get the point. At any moment I have more than 100 positions to diversify and market neutral, not one position taking all account capital.

trend2009 · Jun 30, 2020

xandman said:
Is this NET return after commissions?
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Yes

blazespinnaker · Jun 30, 2020

virtusa said:
You should care because of the fact that the expectancy is very important.
His average profit per trade in 100 trades is 100 times bigger than in 10,000 trades. So what you say is wrong.

If his profit is average over 10,000 trades 0.013%, it means that his profit at a 50% winning rate should be 0.026% if he would put a stop at 0.013%.
50% winning at 0.026% and losing 50% at 0.013% gives 0.013% expectancy without taking in consideration the commissions.

Trading the ES 0.013% equals about 0.39 points or 2 ticks. If he would put a stop at 2 ticks he will get stopped out most of the time in seconds.

If he would make his return in 100 trades things would look much better. Trading the ES 1.3% equals about 39 points or 156 ticks. If he would put a stop at 156 ticks he will probably never be stopped out.It would change/improve his risk profile massively.
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The system is more statistically significant because there are more trades.

blazespinnaker · Jun 30, 2020

old coot said:
130% from mid March is not much of a trick.
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Very true, but that statement is completely missing the point as several other folks have pointed out in this thread.

virtusa · Jun 30, 2020

trend2009 said:
you did not get the point. At any moment I have more than 100 positions to diversify and market neutral, not one position taking all account capital.
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You did not tell that initially, so it is difficult to get the point if essential information is kept out.
You just told that you did 10,000 trades. No mention about diversification or spreading capital over many positions.

Maverick2608 · Jun 30, 2020

blazespinnaker said:
(sigh)

I don't quite understand the motivation behind posts like this.

Some guy crashed the entire global markets with a very "simple" strategy and I can't imagine that reverse engineering it was very difficult once they narrowed it down to that one trader.

If what you're trying to say is that long term strategies that work for significant periods of time are often more complex in nature, than yes, I suppose that is reasonable. However, with most automated systems that are not subjective, there are strong hints from the trading history that scream "look over here" and any reasonably educated and talented quant can probably locate the alpha.

There are exceptions of course, but it isn't really a factor of the complexity of the system, but rather of the trading pattern and signals used.
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There are essentially no real barriers to entry in trading. If the strategy is simple, it has been arbitraged away by the pursuit of millions of traders before you. That is simple logic.

"Some guy crashed the entire global markets with a very "simple" strategy." Who? Navinder Singh Sarao? He was convicted. Hardly an example of a succesful trader with a simple strategy.

blazespinnaker · Jun 30, 2020

virtusa said:
You did not tell that initially, so it is difficult to get the point if essential information is kept out.
You just told that you did 10,000 trades. No mention about diversification or spreading capital over many positions.
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Given a choice between a system that performed with 10K trades versus 100 trades over a 4 month period, I'd very likely prefer the former. However, I'm set up for high volume reporting and PDT and I can see where others might not be.