Analyzing entries from systematic trading strategy

Today I analyzed 4 major instruments on the 4-hour and daily timeframe and compared hypothetical entries taken by a coded trading strategy with what I would have considered if I had been trading the same market on a discretionary basis.

Looking at two US indices and two forex products. 

Review of Systematic entries

In the past year, my trading has focused on the 1-hour (and lower) timeframes.  Lately, my testing and coding has focused on the 4-hour and higher timeframes.

Today I am looking at how one of the systematic trading strategies would have traded on several markets in the past week and a half and assessing whether I am happy with the trades that the strategy would have taken and/or whether there are additional setups that I would have liked to take pursuant to this strategy.  False positives and false negatives in other words!

One of the downsides of automating a trading strategy is that it is not possible to articulate every single component of a trader’s decision making process into code.  Hence there is a clear trade-off between being able to trade a larger number of markets for more hours each trading day, with a decrease in the quality of the analysis (because the coded strategy will most likely be simpler than a discretionary evaluation).

For each instrument, there is the 4-hour chart as well as the Daily chart.  It is a mix of working with moving averages, support/resistance and applying the concept of market structure (see Voigt (YouTube)and Pepperstone link on this blog)

S&P 500 index (the ES futures contract):

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Dow Jones Industrial Index (the YM futures contract):

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Euro-USD forex rate (the EC futures contract):

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The EC trade near the end of August had a stop less than 30 pips – which is rather tight on the 4H timeframe – and it would have been entered shortly prior to speeches from both Fed’s Yellen and ECB’s Draghi, and on a Friday afternoon – thus taking on weekend-carry risk.  Would I have let the strategy trade like that without interfering? Good questions!

Australian Dollar, the AD futures contract:

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This review has been very insightful.  It brings home the message that it is not easy to code the context reading of the market – well at least it is difficult for me to do that, at this point.

Secondly, it is valid to ask whether I “would have the balls” to let the strategy trade away with the pre-designated stops regardless of upcoming news schedules and irrespective of the time of day or week (subject to the specified entry time constraints).

This entry was posted in Futures Trading, Testing, Trend-Following Strategy and tagged , , , , , , . Bookmark the permalink.

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