Quantitative trading system includes three major functions: 1: The expected rate of return calculations. 2: risk control assessment. 3: Potential Risk. They are on the traders in the past, present and future performance to make an objective assessment and prediction, and on the Trader current transaction risk quantitative management, in simple terms, function 1 - the expected rate of return calculation is based trader historical transactions of the standard deviation He returns to estimate the possible rate of return after one year. Function 2 - risk control assessment was based on historical trading Trader Sharpe ratio, the risk rate of return, standard deviation of returns, the correct rate and the average profit and loss position longer than the calculated data such as comprehensive assessment of the value of risk control capability. Function 3 - sub-3 early warning of potential risks, and green for the moment there is no risk or minimal risk, yellow flashing yellow card football equivalent of that past Trader account transactions has led to risk, if the transaction does not change style or trading habits may have greater risk, but this time the account may still be profitable, as long as the operating properly there may be even better. Red flashing red warning is equivalent to football, said current trading trader over account risk tolerance, traders need for timely treatment, and possible to stop trading, or rest a few weeks based entrepreneurship . The system is based on the model and var capm model design and run the mt4 on the system, vision following diagram: (The figure shows that the set of quantitative trading model)
all function introduce is come from the Website: http://forex95.blog.hexun.com/62144304_d.html Function 1: Calculation of the expected rate of return: The figure seer The figure shows part of the expected rate of return that investors pay attention to where the value is off after the expected rate of return per annum. Investors such as a 3 months, 10% real rate of return, standard deviation of 0.3, then folded after the expected rate of return per annum: 0.3 * 10% / 3 * 30/365 = 12%., detailed calculation, please Look at the following introduction. Expected rate of return of capital asset pricing model is based on the formula calculated. Sharp found that a single stock or portfolio expected rate of return (Expected Return) of the formula is as follows: Where, rf (Risk free rate), is the risk-free rate of return, the pure time value of money. ¦Ãa is a Beta coefficient of securities. E (Ri) is the market expected rate of return (Expected Market Return). The stock market premium (Equity Market Premium). CAPM formula right first is the risk-free rate of return, typically a risk-free rate of return is 10-year U.S. government bonds. If stock investors need to bear additional risk, then he will need in the risk-free rate of return based on the multi-access to the corresponding premium. So, the stock market premium (equity market premium) equal to the market rate of return minus the expected risk-free rate of return. Securities and stock market risk premium is the premium and the product of a ¦à coefficient. Note: If the expected rate of return is negative, indicating that investors in weak attack, on the contrary, the greater the value of the benefits that investors can expect the more. Single rate of return: the net rate of return divided by standard deviation. The smaller the value, indicating the degree of risk is also smaller. Risk-reward ratio: the average absolute value of earnings divided by the average loss. The higher the value, benefits that small and large risks. Also in response to a certain extent, the investor's trading capacity. Function 2: Potential risk warning, vision following figure Kelly maximum position: According to the investors, the accuracy rate of return and risk the moment the biggest investor positions available. The formula is calculated based on Kelly. Kelly formula: F = ((R + 1) * P - 1) / R P = percentage of accuracy of the system profit R = trading profit ratio relative to trading losses. If a 65% accuracy rate and 1.3 times the winner into a loser's systems do the calculation example. F = ((1.3 + 1) * 0.65 - 1) / 1.3 = 38% of funds for the transaction Kelly biggest positions with the actual funds available to investors, have great relevance, the so-called real money available means is: If the account of investors on their own account, and he also authorized account all the losses can occur under , then the maximum amount he can afford is the amount of his income. However, if a trader's account is not their own operations, but the customer's account, if a customer told him that accounts can be subject to the greatest loss of 40% of the total capital. So assuming the account is 1 million dollars, then the trader is available to 4,000 U.S. dollars real money. Parameter settings shown below: Investors, the actual funding available is the largest investor can withstand losses, investors need to set the parameters of their own situation. In addition, there appear include Kelly largest current account position is the position situation. For example, a euro account the existing one hand and 2 hand-pounds, is calculated according to Kelly, the maximum hand position is 4.3, you now see the hand of the screen shows the number of hands is 1.3. Maximum allowable amount of loss: refers to the transaction does not affect the performance of your circumstances, the maximum amount of current can be a loss. The maximum probability of potential losses: refers to the VAR model of the confidence interval. This value indicates that there will be certain times of the biggest investors in the probability of loss. Figure specific settings: Confidence interval and the corresponding value of the probability table. Confidence interval 0.01 0.03 0.05 0.1 0.2 0.3 0.4 percent 1% 3% 5% 10% 20% 30% 40% Note: There can only be set above ConfInter values (from 0.01 to 0.4 range), if investors are initially set to other values: 0.01 Proportion of value at risk: the value of VAR is * 100%. That investors in the set time, how many there will be little probability of a loss. Usually one year period set by the total number of 252 trading days. see below: The calculation of value at risk associated with the investor's strategy. Usually we assume that investors there will be a continuous loss per week 4 times (the case of investors in their own visual set the value. Parameter is on the map: maxlosstimes), We also assume that investors can trade in one year number of weeks for 48 weeks (excluding holidays and investors do not trade all the days, investors can also set the value to their own circumstances, the parameters for the on the map: operationweek) led to different parameters calculated from the value of different risk , the investor must be based on the actual situation to set parameters. Note: If the risk value of the share of If negative, show the amount of gold is greater than the amount of income payments. Early warning of potential risk assessment and classification: In actual transaction, there will be loss-making situation. To the account of the situation, there have been 3 consecutive losses, 3 times total loss is $ 310.93. Assuming the extreme case, 6 is 2% of the total capital loss situation, it will exceed the amount of customers to bear the loss. So, on this point, we made a new trading rules to improve. Add a new trading rules: With the loss the day before trading positions by half, if they lose, cease trading the next day if the loss of a day without trading losses for 3 consecutive days, the week is not trading. With this rule, at least in the short time there will not be 6 consecutive loss situation is up to 4 consecutive losses, it will not appear each time a loss is 2% of the total funds to the situation. So the whole, even if the extreme case, the maximum loss can be controlled in less than 7%, in line with customers to bear a loss of 10% of the requirements. Rating Alert: When the negative average earnings, will give traders a yellow card warning. Maximum positions when the hand is less than 0.01, will give traders a red card warning, green for the moment there is no risk or minimal risk, yellow flashing yellow card football equivalent of that past Trader account transactions have led to the existence risk, if you do not change the trading style or trading habits may have a greater risk, but this time the account may still be profitable, as long as the operating properly there may be even better. Red flashing red warning is equivalent to football, said current trading trader over account risk tolerance, traders need for timely treatment, and possible to stop trading, or rest a few weeks based entrepreneurship . Function 3: sub-control capacity assessment: Here we also give a streaker in the transaction and account information network assessment maps: the account is true account (Account source; http://money.bbs.hexun.com/post_64_1469890_1_d.aspx ) Sharpe: Sharpe index, it is a risk-adjusted performance indicators. Sharpe on behalf of investors to take a point for each risk, you can get a bit of excess return; if it is positive, then the rate of return over the fund volatility; if it is negative, then the fund operational risk greater than the rate of return . The higher the Sharpe ratio, the more representative of the risk is worth every cent commitment. Sharpe Ratio (SharpRatio): Sharpe index = ¡²average rate of return - risk free rate¡³ / standard deviation. Meaning "of each unit of risk, may give the excess return. Standard deviation: Standard deviation is a set of values spread out from the average of a measure of the extent of the concept. A larger standard deviation, which represents most of the difference between the average value and larger; a smaller standard deviation, on behalf of these values close to average. In general, the larger the standard deviation, indicating more severe ups and downs of the net, the degree of risk as well. The smaller the standard deviation, indicating the degree of risk is also smaller. The average single profit and loss: the total revenue divided by total number of transactions. Risk control assessment was based on historical trading Trader Sharpe ratio, the risk rate of return, standard deviation of returns, the correct rate and the average profit and loss position longer than the calculated data such as comprehensive assessment of the value of risk control capability. Ability to assess risk control a total of 5 ratings, see below