Oil and Forex Trading Update II

prudential100

Not sure what was more challenging last week – back-testing the trading strategies or completing 100 miles on my hybrid bike (along with 30,000 other keen Londoners!) on the Prudential100 charity ride.

In any case, here’s a weekly update of the continuing work in testing and designing a trading strategy for the Oil and forex markets.

Oil and Forex Trading Strategy Update

  • Articulated and coded five refinements to the initial trading strategy – introducing a pullback into the parameters, using the ADX indicator and a simple moving average to measure the short-term sentiment, requiring a break of the trigger candle high/low before entering and finally allowing tightening of the stop loss once a trade has hit a certain favorable variance.
  • Impact on testing results on Crude Oil futures – these changes did not make the strategy profitable, however the average loss per trade was approximately halved.  The number of trades reduced from 1200 to 200.
  • I guess it is quite ambitious to overcome implied transaction costs of 10% (3.5 ticks allowing for spread, commission and entry/exit slippage) with average stop just above 30 ticks.  Note I am being pessimistic on the transaction costs.
    • When it is put like that, one can see the advantage of trading on higher timeframes where the average stop can be much bigger (with lower volume obviously) whilst the transaction costs remain the same [see link below for a discussion of transaction costs]
  • A definite conclusion is that I have reached the limitation of Microsoft Excel for testing purposes – the number of 20-30MB files containing tens of thousands of data points combined with a vast number of formulas introduce a high risk of errors, and tremendous inefficiencies in rolling out to other testing periods, sensitivity analysis, optimization and/or testing further refinements.  The past week was a perfect illustration of this.
    • And this entailed having one model for the trend definition (1H timeframe), another model to identify the trigger candles (15M, 30M and 1H), a 3rd model for entries, trade management and exits (3M) and of course files for storing and formatting the initial raw historical data
  • Hence I guess it is “Bye Bye Excel” and “Welcome to EasyLanguage and TradeStation”!
  • On a good note, I was surprised at being able to articulate my thoughts into formulas very quickly – something I had not expected.
  • Am also thinking a lot about how to make this trading project work in the long-run.

Forex Trader Networking

  • Met with both the discretionary and the systematic traders from the hedge fund last week.  All these meetings tend to be very insightful and discussion points range widely – it is great to be able to draw on their vast experiences and trading knowledge.
  • Nice pub lunch with a fellow trader from the Veterans Trader Project, as well as ‘Mr France’ (an old colleague of mine from the previous trading office).  These two chaps are now both based trading at the Audacity offices in central London.  There is still a Mr France category on the blog here if you want to view earlier blog posts in which I detailed some of the things we worked through together.  Mr France now trains beginning traders and is trading funds on behalf of some investors.  He even has a short Youtube video – check it out!

Links and articles

  • Biggest Risk in Trading: Opportunity Cost written by Sean McLaughlin, a trader with 20 years experience under his belt reflects on the opportunity cost of his trading career – and also on the challenges of trying to move from a trading career into a ‘normal job’ – excellent read!

Since there aren’t other articles that spring to mind, here are four blog posts I wrote a long time ago – may they provide insightful reading:

Am taking today, Monday, off for resting  and recovering physically from doing the 160km on the bike, from being tired all week last week, and from the mental energy that has been flowing into these back-testing exercises.

 

 

 

 

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