Automated T/A software that can do its own analysis

Has anyone developed sophisticated software that can create and analyse (using developed principles) charts and give you direct information on those charts. E.g. tell you if there is support and resistance or possibly tell you where you should buy in. I human can do this, however if a program could also do this - imagine how many charts a program could analyse? Its possible that a program (through the use of the internet) could analyse charts from all the major stock markets in the world and give you this sort of information within minutes.

Nothing is cement - but it could possibly be a great tool.

Yes, there are some people doing this, myself included and yes it does make it possible to analyse and monitor large numbers of stocks very quickly and efficiently. In my experience this doesn't , however, translate to instant riches.

A few thoughts/caveats from my own experience.

1. Many off the shelf trading software packages have scanning facilities that can do a perfectly adequate job of selecting suitable trading candidates from a list of stocks such as the ASX All Ordinaries or whatever.

2.There is not much point in locating a zillion good entry setups. Your trading is limited by the number of open positions that you can manage and/or your available trading capital. Having 50 trading opportunities if you can only handle a maximum of 5 open positions is going to be more of a confusion then help. Of course you can add some sort of a system to rank your selections in order of estimated probability, but such rankings, either for a computer or a human are never a guarantee. Highly ranked trades will often fail while poorly ranked trades can sometimes succeed spectacularly.

3. Good exit strategies are much more important than entry strategies. Exits not only determine the profitability but also the characteristics of the trades.

4. Markets change, some times very abruptly. Successful traders or their trading systems/software must somehow be able to deal with this.

5. Automated, computer trading is possible, but advocates of it typically spend a lot of time developing , monitoring and continuously modifying their trading software. Most of the people I have come across who have done this sort of thing successfully seem to have better than average programming skills or in the case of large organisations, the means to employ them.

It is often said that trading is an art not a science. I would say that trading is the art of managing probabilities in a high noise environment. The use of computer technology in this type of environment is in itself an evolving art.

Good Luck

Yes coding skills will enable anyone to devise just about anything.

In Metastock you can create "experts" You can devise systems and test them,there are many many soft wares which will give you the capacity to do many many things.

Limited in the most part by the operator.

MetaTrader4... I'm still swatting bugs but have this automated system running on a Demo account of $2800 balance on 1% risk per trade... merrily goes placing trades, modifying stops, and closing trades... whilst I sleep.... just need to get the TrailStop working properly before running for real..

Cheers
............Steve

tech/a said:

Limited in the most part by the operator.

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It's very true and that pretty much summed it all up.

I am also working toward that goal.

Here is an interesting side for you to look at,

http://championship.mql4.com/

Be aware that the trading systems they employed are SPECIFICALLY DESIGNED to maximise their chance to win the competition. That is, it would usually take higher risk that one would not normally use in the real world for long term trading.

Kauri said:

MetaTrader4... I'm still swatting bugs but have this automated system running on a Demo account of $2800 balance on 1% risk per trade... merrily goes placing trades, modifying stops, and closing trades... whilst I sleep.... just need to get the TrailStop working properly before running for real..

Cheers
............Steve

Click to expand...

That is completely amazing. I guess the question is can anyone run it or pretty much just you because you know the system inside and out?

Well done. Did you do it all yourself?

I use NinjaTrader to chart different indicators, and then run backtests on data that I imported into the program (eg the s&p500 1 minute index data), by writing strategies that are based upon several indicators.
You can tell the software to place different types of orders, set profit / stop limits, etc, even do money management type stuff. For example I wrote some code that changes the number of contracts you trade once your capital has built up enough, etc.
It also provides detailed anaylsis on the trades and you can access several graphs etc, and step through all the trades your system traded on, which allows you to see the trades it perhaps shouldn't have, which then allows you to add in extra logic or whatever to improve.

Also, there's a cool 'optimize' feature which allows you to brute force test on your input variables into your strategy to work out the best values. This may not be clear - i'll give an example. Say you were using a HMA (hull moving average) indicator in your strategy, and it has an input variable of the Period, which might have a default of 20. This means that is does the averaging over the past 20 bars. However, you don't really know what value for this Period will give the most profitable results (say when combined with a bunch of other indicators), and it's very time consuming to sit there and try different numbers randomly. So, you can run an optimize run on that value, say Period: min=10, max=50, stepsize=2; and you specify the metric to optimize on - for example: max profit, then you let it run, and it outputs the best results.
The power here really is when you have a whole pile of input variables, and you let your computer churn away for a few hours and get the best combination of input variables for your strategy.

There are wizard type interfaces for basic strategies, but the power comes if you get into the actual programming code. All the code for writing your own indicators and strategies is in C#.NET. I'm lucky enough to have a background in that, so I have picked up the coding very quickly... however, beginners should be able to pick it up relatively easy - I'm impressed with how they've structured the software for usability.

I'm only beginning to learn and understand the markets and indicators, etc.. but if you want to mess around with mechanical automated strategies I'd recommend this product.

Best of all it's FREE!! ... that is the simulation mode - which is all i'm using now....

If you are able to come up with the holy grail of strategies, then you can pay a small subscription fee to ninja trader, and hook it into a trading platform, and your strategies can actually trade in the live market - but I have a way to go before that yet.

Hope this info helps.

-daniel

Greetings all --

There are many automatic systems running -- receiving data, computing indicators, looking for patterns, generating signals, determining position size, entering trades, exiting trades -- all without direct human intervention. By some estimates, one third to one half of all trades now result from such systems. In my opinion, trading will move increasingly in this direction in the future.

Most (all?) of those systems are run by large trading organizations, not individual traders. Most get their inputs from tick-by-tick data and execute very quickly after the signal is recognized. Millisecond response time (between receiving the tick that triggers the trade and making the trade) is typical.

There are many critical issues (beyond designing and testing the trading systems to be used) with automated trading.

For one, the quality of the data is extremely important. One bad tick can trigger a trade. When that bad tick is corrected, that entry signal will disappear, but there will probably not be an exit signal. A person sitting at the trading desk monitors every trade and acts as a fail-safe.

For another, the computers and communications facilities must operate flawlessly. If the data feed drops, or a computer fails, or the interface software between the computer that is running the trading systems and the computer that is executing the trades fails, or the execution side fails, or the market enters fast-market conditions, or the power fails, etcetera, even for a few seconds, then the trading systems may not act as expected and backup procedures must be brought into play.

At one time, I worked for a company that used automated trading systems. Both of the conditions I described above happened fairly regularly. I would never trust the system to trade my account, or my company's account, while I slept, or even while I left for a quick lunch, unless there was some person able to react quickly when a problem arose.

Automated signal generation and trade execution is well beyond the capability of individual traders. But the individual trader is competing with those systems and is often the other side of those trades.

Thanks for listening,
Howard

Howard, thanks alot. Give me more additional insight on the potential risks of running a fully automated trading system.

howardbandy said:

For one, the quality of the data is extremely important. One bad tick can trigger a trade. When that bad tick is corrected, that entry signal will disappear, but there will probably not be an exit signal. A person sitting at the trading desk monitors every trade and acts as a fail-safe.

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My understanding is that this risk can be mitigated through the use of a proven and quality broker? I would say the data feed through interactivebroker and alike should pretty much even out the "competitive advantage" from the insitutional players.

For another, the computers and communications facilities must operate flawlessly. If the data feed drops, or a computer fails, or the interface software between the computer that is running the trading systems and the computer that is executing the trades fails, or the execution side fails, or the market enters fast-market conditions, or the power fails, etcetera, even for a few seconds, then the trading systems may not act as expected and backup procedures must be brought into play.

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This is definitely a big one. I doubt any professional automated trader would ever consider hosting their own computer and network to operate their trading system. Again, I believe the risk can be mitigated through the use of datacenter colocation facilities preferably located near the broker's server to take advantage of the reduced time lag. I heard there are even places specifically designed for insitituional traders that have DIRECT CONNECTION to the exchange themselves. But obviously only reserved for the exchange members and require lots of $$$$. Regardless, I was told that a general internet connectivity companies with the right hardwares and 99.999% guaranteed uptime should be sufficient.

At one time, I worked for a company that used automated trading systems. Both of the conditions I described above happened fairly regularly. I would never trust the system to trade my account, or my company's account, while I slept, or even while I left for a quick lunch, unless there was some person able to react quickly when a problem arose.

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That's very interesting and certainly appreciate the needed to have an additional safety of having someone with full time access to the trading system in case of unexpected problems.

Automated signal generation and trade execution is well beyond the capability of individual traders. But the individual trader is competing with those systems and is often the other side of those trades.

Thanks for listening,
Howard

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This is exactly where the edge is. Extremely challenging but I'm sure it can be done by any determined and capable individuals.

At one time, I worked for a company that used automated trading systems. Both of the conditions I described above happened fairly regularly. I would never trust the system to trade my account, or my company's account, while I slept, or even while I left for a quick lunch, unless there was some person able to react quickly when a problem arose.

Click to expand...

Automated signal generation and trade execution is well beyond the capability of individual traders. But the individual trader is competing with those systems and is often the other side of those trades.

Click to expand...

This is exactly where the edge is. Extremely challenging but I'm sure it can be done by any determined and capable individuals.

Click to expand...

A few additional thoughts.....

Reliability, backup, error detection and automatic recovery are all important issues that need to be taken into consideration in the design and development of automated trading systems. The good news is that off the shelf hardware and software is readily available, easy to use and fairly affortable compared with say, even 5 years ago.

As for leaving the system unattended, I'm happy to go out to lunch and leave my system to execute exits, but I dont allow it to place unsupervised entry orders at this stage. I also ensure that a stop loss order is in place as a backup. As for systems making errors, so do humans. I have lost significant amounts of money in the market at times just through faulty (human) execution. The fact is that even with power failures, software bugs, hardware failures and internet outages, my computer system is still more reliable and consistent than me!

I dont believe the individual trader/developer need be too intimidated by the apparent capabilities and resources of large organisations. What individual traders do is often not scalable to large organisations. Goals and objectives are likely to be very different. Also private individuals have the huge advantage of flexibility and freedom from "management structure" which can, to say the least, stiffle creativity and enterprise.

I know of a few "determined and capable" people in Aus and quite a lot more in the US successfully developing and using automated trading systems. At the moment it is very much "The Edge" but eventually I'm sure we will be able to buy off the shelf, automatic trading systems that work. Of course then it won't be "The Edge" any more, so those of us who like a challenge will have to go and find the next edge.

Perhaps that will be nuclear magnetic resonance trading systems, or chemical substances that significantly enhance human trading intuition, perhaps, perhaps perhaps....

Interesting thread.

I've always felt that one of the inherent edges small traders (OK, may be I'm the only one of those here) had was potentially being more nimble and flexible than larger operators like funds. It is just not practical to move large amounts of money in and out of short term positions and have resting stop loss orders without the risk of adverse slippage.

Cheers,

Kenny