Hi fullautotrading, thank you for posting constant updates on your portfolio management system G-BOT. Could you please include a little text commentary in your posts to explain what and why the shown changes (in a post) have happened according to your strategy? It would be really useful to hear your opinion why any change between snapshots have occurred. Thanks!
Hi AItrader, sure with great pleasure. For now here is an update for this end of week. All is proceeding fine so far, <b>gradually building up our "G-L" (net gain component) and and bounding the unrealized</b>. During the weekend I will explain more in detail several changes and improvements I have made to the scalping/hedging game, to make them more intuitive and effective. <img src="http://www.elitetrader.com/vb/attachment.php?attachmentid=143667&stc=1&d=1393627545" />
Hi AItrader, Let me begin explain the player systematization I have been making lately, in easy-to-follow "small pills". Although I have made massive internal structural changes, I will not describe those as they would not be of interest to a fund manager, but merely focus on the logical aspects useful for trading. Let focus on the <b>scalping/hedging game</b> and the <b>players</b>. First of all, in a "scalping/hedging game", the players of the game can belong to 2 categories, which make 2 different type of entries: - SCALPING entry - HEDGING entry After all, that's why the games are called "scalping/hedging" Visually they are denoted, with a circle and a square respectively. If red, it's a SELL entry. If blue it's a BUY entry. <img src="http://www.elitetrader.com/vb/attachment.php?attachmentid=143687&stc=1&d=1393676152" />
As a concrete visual example, let's see these pictures where some players are shown. In the top picture, all orders are shown. The circles and squares which have a frame denote entries. Those which do not have a frame around denote a close order. In the bottom picture ("player view") only the open players are shown. The close order, as well the closed players are not visible, but only the <b>open players</b>. This second view is the one which is most useful when actually trading. (The "player view" mode is selected by simple checking the corresponding check box on the trading monitor.) <img src="http://www.elitetrader.com/vb/attachment.php?attachmentid=143691&stc=1&d=1393677594" /> For instance the first sell player (15 shares at 79.89) is not visible here because closed at 78.89. And similarly the 2-th buy player (30 shares at 79.53) is not visible here because closed at 80.49, and so on. Focusing on the "open players" only makes very easy to follow the scalping/hedging game, and in case make changes.
Hi fullautotrading, thanks for posting additional comments. Still however I cannot understand what are the triggers to activate a scalping/hedging games in the graphs above. At the same time it is not clear what how you define a scalping/hedging game in the context of a player. I am really looking for an algorithmic / step by step explanation like: a) the player assume that the average price AP is $97 b) when the price move above 2% of the AP then a scalping game starts c) as the scalping game involve assuming that the price will reverse to AP, a sell order is entered. d) and so on. Thanks!
Hi AItrader, I will provide some answers, keep asking if still not clear. <b>> I cannot understand what are the triggers to activate a scalping/hedging games in the graphs above.</b> The triggers to activate an entry are the rules specified in the game. For instance, if you have these rules for a scalping-loading (CT) entry: <code> EntryStyle_ScalpingLoading_CT = Sdx OrderSizingMode_ScalpingLoading_CT = OtherSidePlayers_AddMultipleOfPacket Exceedance_Or_Multiple_DependingOnSizingMode_ScalpingLoading_CT = 1 </code> and for the SDX index: <code> SDX_Lt_Min_CTBUY = 20 SDX_Lt_Max_CTBUY = 100 SDX_St_Min_CTBUY = 10 SDX_St_Max_CTBUY = 100 </code> this would mean that we are triggering the entry ("EntryStyle_ScalpingLoading_CT = Sdx") based on the SDX index, and it will occur when the long term SDX exceeds the value of 20 and the short term index the value of 10. The order sizing mode would be "OtherSidePlayers_AddMultipleOfPacket" with parameter 1, which means that the order size will be equal to the position of the open opposite side players, plus 1 packet. So entry style and sizing are completely specified in the game rules. Clearly, there can be other rules to fulfill, such as, for instance, the minimum distance between players (which therefore governs the trading frequency). <b>>At the same time it is not clear what how you define a scalping/hedging game in the context of a player. I am really looking for an algorithmic / step by step explanation like: a) the player assume that the average price AP is $97 b) when the price move above 2% of the AP then a scalping game starts c) as the scalping game involve assuming that the price will reverse to AP, a sell order is entered. d) and so on.</b> A player pops into existence with an entry, and once in existence it follows the assigned game rules until it closes (it can only close in profit). A player can also be seen intuitively (in a simplified view) as nothing else than an <b>order equipped with a closing rule</b> and keeps memory of open price and position. The scalping game assumes nothing. It is just the set of given rules which are enforced. There are no assumptions of any kind here about the future behavior of the price. There is a goal: which is to grow the net gain component (denoted by "G-L" in the trading monitor) to infinity, while continuously bounding the unrealized.
Situation update. Still scalping/hedging quietly. TNA has been running away a little but also hedging. I have installed the last update of the application, with some improvements in the game rules. <img src="http://www.elitetrader.com/vb/attachment.php?attachmentid=143792&stc=1&d=1393972188" />
Dear Tom, I have been following your posts for years now, going back to when you were first simulation testing this thing. I admire all your work and I think the software you have created is really impressive. However, I feel obligated to tell you that I think there may be no edge in your current strategy, and that is why you are now losing money. I doubt the widely available scalping and correlation indicators you use are themselves a source of edge. As to the game, there is no reason to believe that having two players is any better than one player who can essentially trade the same overall strategy -- obviously you are free to code up arbitrarily complex logic in trading the account, regardless of the number of virtual players. This means, for example, that remembering stops is not in and of itself a source of edge, and that if anything, having the two players at all independent can only hurt you vs. one player with fully coordinated effort. I think the main problem is that you have convinced yourself that the players waiting around for mean reversion (or really, price reversion to previous levels) is in fact a source of edge. You repeatedly make statements taking this reversion for granted. The problem is, there are no guarantees, so you are likely to make a lot of money on the scalping until such time as you take large losses, where some of the instruments "run away." For example, suppose you had been trading gold - would it be reasonable to include in your "unrealized PNL" the profits that might come from price going all the way back up to prior levels? Those levels may never come back... or it may take longer than the horizon of your investors. In particular, I think your "unrealized PNL" should really just be called "losses", because it is essentially a tally of losses incurred from prices not reverting to previous levels. Your true PNL is in fact the liquidation PNL you show in the charts, which is negative. If you don't believe me that you have fallen victim to this hidden assumption of mean reversion, go all the way back to your out of sample simulations... didn't you always use a brownian motion with mean reversion instead of one without? I guarantee you that your method would show long run zero profits, and a loss including commissions, if you remove the mean reversion assumption from your simulation tests and just use a true martingale brownian motion. Does this mean all hope is lost? No. But I think in order to be profitable you need to focus on instruments which are likely mean reverting. Commodities futures, especially agricultural ones, are known for having this property. I also think you should stop trading leveraged ETFs against their inverses "as a hedge", unless you are specifically after some statistical arbitrage on the spread. Otherwise, there is little reason to believe that simultaneously scalping almost-perfectly-negatively-correlated instruments is any better than just scalping one of them with stops in place. Finally, if there is any edge to be had on mean reversion of equities and ETFs, it is because they go through periods of mean reversion and then periods of "price discovery" to a new mean. Those periods of price discovery are the ones that cause your big drawdowns. Without efforts to identify these periods, and adjust stops/scalping accordingly, it will be very difficult to have a lasting edge. Just my $0.02. I don't claim to be a market expert, but I strongly want to see you succeed. If there is anything I can do to help, please let me know. mj
I should add that the "trading game" may be very valuable in terms of simplifying the programming of otherwise very complex logic. That is a great benefit. I just think it's important to zoom out to the level of the aggregated actions on your trading account, and make sure that the big picture actually matches the micro-level decisions of the individual "players". mj
@monkeyjoe > I think the main problem is that you have convinced yourself that the players waiting around for mean reversion > I doubt the widely available scalping and correlation indicators you use are themselves a source of edge > you have fallen victim to this hidden assumption of mean reversion > Just my $0.02. I don't claim to be a market expert Hi monkeyjoe Thank you very much for your comments. I have not much to answer to you comments, as you said that you have been following for a while. All I can say, at this time, judging from what you write, is that you have not get the conceptual essence of the methodology yet, at least in its most recent form, and you have a lot of confusion about how and why this works. I am also not sure from where you infer the approach is not making money. My experience is just the opposite, and in particular this session we just started is just doing as expected. We are after is long term systematic profitability. The "G-L" must be built up gradually to pull up the PNL, while at the same time hedging and recovering the hedging orders, and that we are doing, systematically. (If you are looking for "get-rich-quick" trading methods, unfortunately I don't have them, and actually I believe they do not exist.)