Algorithmic Trading 101
Introduction – About me:
Welcome to this blog, my name is Victor and i’m an algorithmic trader (Forex, Futures and Stocks) from Spain, i have created this page to divulge about Algorithmic Trading through videos and written publications.
I’ve been on the markets since 2013, my begginings were hard, since back then it was quite hard to learn useful trading resources about coding and even working trading strategies. In fact, back then, it was the beggining of the whole Internet Marketing and SEO fads, where people made articles to promote brokerage firms and earn CPA payments through them without teaching anything.
Check that link, seems familiar? Of course not. Brokerage firms cover their affiliate marketing promotions so they aren’t too visible. But that’s a whole different point.
Back on track, nowadays we have more online resources available to the public than ever, and that may be a problem, or may not.
Let’s face a fact, most of the information found on the internet about Trading is false, or stopped working a while ago.
This is a key concept to understand Algorithmic Trading, and one simple term that can prove some theories.
Algorithmic Trading – The rise of Data and Backtests:
Backtests to Trading are like experiments in the scientific world. Small-scale hypothesis testing. In this case we get to know, using historical data if a trading system or a financial model worked in the past or not.
For example, what happens if a buy a certain Forex Pair at X hour and Sell it at Y hour?
We can create with code all the scenarios we want to test, some of them will be hard, some others don’t.
There is no guarantee of success having a profitable backtest, it is past data, but does it make sense to know that if something worked in the past it will be better than something that did not work? Right?
The objective here is to find inefficiencies or edges, find patterns that are repeated over time, we want to find a statistical significance:
In statistical hypothesis testing, a result has statistical significance when it is very unlikely to have occurred given the null hypothesis. – Wikipedia
This edges can be simple, the example showed above is based on a simple momentum strategy filtered by hours, others can be more complicated, like using retail positioning data using the hypothesis that most traders are wrong and tend to lose money over time.
Once we have a model or system is time to validate it against the market, but the process varies according to which financial products you use, Forex, Futures or Stocks… I’ll talk about this in further articles and videos.
Bullet point: If you can model something with historical data you’ll be able to see any parameter about your model.
How can i learn algorithmic trading?
This is the million dollar question, well, algorithmic trading can be separated into two components:
Programming + Trading.
First of all, you need to know how to code, is something that i have pending to do in my Youtube channel, small courses for free about the basics in MQL4 and MQL5. Anyway you can start coding with a lot of free resources available on the internet. There are a lot of awesome resources for Futures algorithmic Trading and Forex Algorithmic Trading.
You don’t need to start with an specific language, since the basics are all the same (variables, loops, functions…). Pseudocode is a great start to learn the basic syntax and programming logic.
Once you know the basics you can start reading and trying to reason and understand MQL4 codes, reading other people’s codes can give you a understanding of the basics.
You can check some of the codes i’ve disclosed on my Github profile, fully functional trading strategies.
Note: This strategies are based on time of Entry, i’m using ICMarkets, +2 Hours difference from U.K TimeZone.
This is the hard part when good resources are scarce, and most of them are not for free. The basics are covered on my Youtube Channel, and you can find some very good books for little money thanks to digital reading platforms like Amazon’s Kindle.
A quick example about what you can do with the right tools and knowledge using a $2.99 digital book and some code.
And if you want only to learn with free resources its ok too. But keep in mind that you are going to need more time to handle everything, test strategies and models… etc.
I tend to spend some time researching strategies using my methodology and templates, with my method i try to spend the less time as posible to check if a strategy is worth it or not.
Hope this can help you, Víctor. – Follow the Edge.