Automated trading methodology sg (final approved) (1)

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Automated trading methodology sg (final approved) (1)

  1. 1. Automated Trading Methodology– The Evolution of TradingVito HenjotoTechnical Analyst, GFT(c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  2. 2. DisclaimerIMPORTANT NOTE: When trading Spot Forex, CFDs, or spread bets you can lose more than your initial deposit.Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which areleveraged, can carry a high level of risk, and may not be suitable for all investors. Past results are not necessarilyindicative of future results. For Australia, a PDS is available at www.gft.com.au. Please read before making any decisionto deal in GFT products. GFT is the issuer of these products. The contents hereof is available or accessible forinformational purposes only and is not to be regarded as an offer or a solicitation to deal in any investment product or toenter into any legal relations. Each investment product is offered only to and from jurisdictions where solicitation andsale are lawful.The information provided should not be relied on as a substitute for extensive independent research, and all tradesshould be considered taking into account your personal trading strategy, including risk tolerance before any trades areplaced. Any projections or views of the market provided by this presenter may not prove to be accurate and may not berepresentative of GFT, its owners, officers, agents or other employees. GFT will not be responsible for any lossesincurred on investments made by clients as a result of any information contained in this presentation. GFT and thecurrency research team do not render investment, legal, accounting, tax, or other professional advice. If such is required,the services of a competent professional should be sought. This presentation and its contents are the property of GFT.Any commercial use or distribution of this presentation without the express written consent of GFT is strictly prohibited.GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including GFT Markets,Global Forex Trading, GFT Futures, FX360, GFT Global Markets Asia Pte. Ltd. (also known as “GFT Markets”) (UniqueEntity Number 200717665N), GFT Global Markets UK Ltd. (ARBN 140 977 171, AFS Licence 344086) authorized andregulated by the Financial Services Authority . © 2013 Global Futures & Forex, Ltd. All rights reserved.
  3. 3. Agenda • Digital Era and Advent of Automated Trading • Manual Trading (why most traders fail) – Advantages and Disadvantages • Automated Trading – Advantages and Disadvantages • Common types of Automated Trading Strategies • Back testing These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  4. 4. Advent of Automated Trading• Automated Trading (HFT and ALGO) has been around for 20 years• Revamp the whole trading industry• Greater Liquidity*• Contrary to what is reported in the media, may in fact Lower Volatility*• Drive down Trading Cost* – Narrow Bid and Ask Spread difference• Better price discovery• During ‘FDAX Flash Crash’ Automated trading prevents abrupt price movements.**• Improving Market Quality during periods of market uncertainty*Credit Suisse, 2012: “Who lets the Bots Out? Market Quality in a High Frequency World”**Backes, October 2011: “High-Frequency Trading and the New-Market Makers” These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  5. 5. Manual Trading• Trading method that requires Human involvement• Manual Market Analysis is involved• Results vary according to Skill and Experience• Flexibility is an option These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  6. 6. Manual TradingPros• Fundamental assessment of the market• Ability to adapt to market changes• Control (risk, money and what to trade)• Flexibility (can open and close positions anytime)• If successful, Satisfaction These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  7. 7. Manual TradingCons• Higher Learning Curve• Time consuming – Research and Analysis• Constantly monitor the market – At times leaving the computer on 24 hours – Missed Opportunity• Requires Discipline – Inconsistency• Decision making is not for everyone – EmotionThese examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  8. 8. Automated Trading• Trading method that requires little to no human intervention.• A program commonly referred to as “robot” trades.• Directives are coded either through a personal strategy or quantitative analysis.• Pre-coded systems are available to general publicThese examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  9. 9. Automated Trading• Types of Automated Trading – Algorithm trading • Commonly used by Retail Traders and Investors • Has been around since the 1980s – High Frequency Trading • Accounts for 1/3 of Volume in the Global Financial Market • Hedge fund, Institutional traders • High Cost of maintenance • Retail Traders do not have access to thisThese examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  10. 10. Automated TradingPros• Minimal knowledge is required• Improves trade consistency• Removes emotion out of trading• Less time consuming than manual trading• VPS (virtual private server) are available – Removes the need to run computer 24hours – Prevents power outage issue and disconnection to trading platform – Can be remotely monitored These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  11. 11. Automated TradingCons• Dependent on MarkLack of control• Does not take into account Fundamentals• Unable to assess current market condition• Due to systematic nature, trades cannot be disrupted• A single strategy will not work all the time – et condition • Trending • Range Bound These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  12. 12. In Practice – Commonly UsedStrategiesMost automated trading used by retail traders canbe classified under the following type of strategies:• Trend Following• Pairs Trading• Scalping• Means Reversion These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  13. 13. Trend Following• A strategy that takes advantage the Up and Downs of Market Movement.• Such Strategy will try to exploit price movements across all time frame.• Remember that trend is subjective! – Daily time frame could be in an uptrend – 1 hour timeframe could be in a downtrend, during periods of consolidation• Moving Averages and Chart Pattern breakouts are the most common combination in such strategy.• Trend Following Strategy do not have a specific target level, instead it will track the trend until the opposite signal is triggered. – Example: • MA 50 crosses above MA100, this is perceived to be a buy signal. • Position will remain in place until MA 50 crosses below MA 100. • This will close the original Buy position and Open a Sell order These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  14. 14. Trend Following Source: Dealbook 360These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  15. 15. Pairs Trading• Every Financial Instrument will have a correlation to another instrument. – Positively correlated stocks in the same industry • Coca Cola and Pepsi • Tech Stocks – Negatively correlated currencies such as EUR/USD and USD/CHF• Especially in Forex Trading, where it is traded in Pair.• Categorized as a statistical arbitrage and considered to be a type of convergence trading.• This Strategy does not care if the market is in a trend or range bound.• The Strategy exploits imperfection in Market correlations.• A good strategy that aims to minimize risk• The assumption behind this strategy is that market tends to correct itself over time. These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  16. 16. Pairs Trading (example) Source: Dealbook 360These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  17. 17. Pairs Trading (example)• EUR/USD and USD/CHF are inversely correlated, i.e. they are mirror opposite of each other 97% of the times.• There are periods where both EUR/USD and USD/CHF move in the same direction.• In the example above EUR/USD remains the same, but USD/CHF gains• Buy EUR/USD and SELL USD/CHF in a situation like the above.• When the market correct itself USD/CHF will resume it’s downward movement and traders profit from the EUR/USD buy as well as USD/CHF sell.• Position is essentially hedged until market correct itself.• Normality does not exist until the above happens and profits yield. – Critical to identify when market condition changes – Humans are unable to be there all the time to monitor these changes These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  18. 18. Scalping and Mean Reversion• Scalping and Mean Reversion are the basis to some of the Automated trading systems out there• Scalping is the act of opening a position and quickly closing it again to gain minimal returns within a short period of time ranging from seconds or minutes• Scalping strategy is mostly related to a Mean Reversion strategy.• Mean Reversion is the notion that once the market exceeds an average boundary, it will revers to normality.• Such Strategies requires indicator that have Standard Deviation as its component.• Bollinger bands is the most common Indicator used for these types of strategies.• Automated Trading are best suited for scalping as they can be programmed to close out the position with 1 pip. Humans are unable to simultaneously monitor multiple instruments and manual trading will take too long to close out the position These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  19. 19. Bollinger Band Example Source: Dealbook 360These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  20. 20. Back testing• Methodology used in Automated Trading Development• Running a strategy with past data, to judge how the program will perform• Back testing is a useful tool to obtain information such as – What Instruments work best – What time frame the strategy works best – Fine Tune the strategy to get the best result – Hypothetical tests with the amount of capital required – Potential Losses and Gain attributed to the strategy – What market condition the strategy works in • Sample data from Trending or Ranging Market • Date Selection – E.g. can the trading strategy survive another GFC? These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  21. 21. Back testing CAUTION! – Back Testing alone is not reliable, Forward Testing must also be done with any Strategy before you flick the switch! – Over-Testing is a mistake! – Fine tuning a strategy to have a minimal drawdown and maximum profit normally does not work well in real world market condition. – Make sure your past data is accurate, Inaccurate past data has a huge impact on test results. – If you are happy with the results from Back and Forward testing, leave it as it is.These examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  22. 22. SUMMARY – The current trading environment have changed dramatically – Used correctly an Automated System can complement Manual trading – More and more traders are making the switch to Automated Trading • This helps them with issues around – Discipline – Emotion – Consistency – Time Management – Have more than 1 Automated systems to be used in different market conditions – Choose a reliable broker, Automated trading requires a constant connection to the broker’s serverThese examples are being used for educational purposes only. Past performance is not necessarily indicative of future results. The views of the author are not necessarily those of GFT, its owners, officers, agents or employees. This presentation does not constitute a recommendation to follow a particular trading strategy. All trades should be considered carefully with your personal trading strategy, including risk tolerance. In addition, any projections or views of the market provided by the author may not prove to be accurate. (c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  23. 23. Thank You(c) 2013 Global Futures and Forex, Ltd. All rights reserved.
  24. 24. DisclaimerIMPORTANT NOTE: When trading Spot Forex, CFDs, or spread bets you can lose more than your initial deposit.Trading of foreign exchange contracts, contracts for differences, derivatives and other investment products which areleveraged, can carry a high level of risk, and may not be suitable for all investors. Past results are not necessarilyindicative of future results. For Australia, a PDS is available at www.gft.com.au. Please read before making any decisionto deal in GFT products. GFT is the issuer of these products. The contents hereof is available or accessible forinformational purposes only and is not to be regarded as an offer or a solicitation to deal in any investment product or toenter into any legal relations. Each investment product is offered only to and from jurisdictions where solicitation andsale are lawful.The information provided should not be relied on as a substitute for extensive independent research, and all tradesshould be considered taking into account your personal trading strategy, including risk tolerance before any trades areplaced. Any projections or views of the market provided by this presenter may not prove to be accurate and may not berepresentative of GFT, its owners, officers, agents or other employees. GFT will not be responsible for any lossesincurred on investments made by clients as a result of any information contained in this presentation. GFT and thecurrency research team do not render investment, legal, accounting, tax, or other professional advice. If such is required,the services of a competent professional should be sought. This presentation and its contents are the property of GFT.Any commercial use or distribution of this presentation without the express written consent of GFT is strictly prohibited.GFT refers to Global Futures & Forex, Ltd. and all of its divisions, branches and subsidiaries, including GFT Markets,Global Forex Trading, GFT Futures, FX360, GFT Global Markets Asia Pte. Ltd. (also known as “GFT Markets”) (UniqueEntity Number 200717665N), GFT Global Markets UK Ltd. (ARBN 140 977 171, AFS Licence 344086) authorized andregulated by the Financial Services Authority . © 2013 Global Futures & Forex, Ltd. All rights reserved.

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