1st-Nov-12 TASS at SCCCI 6.30pm - 9.30pm (about 60 attended)
About Mechanical Trading Systems
Mechanical Trading Systems are precise sets of trading rules and
designed to be mechanical in nature. It is to provide trading signals
when prescribed conditions are fulfilled, e.g. when and at what price to
enter or exit a trade. These systems are designed to be executed
without taking consideration of human emotion.
About the Speaker:
Teguh Pranoto Chen specializes in Mechanical Trading Systems (MTS).
Using advanced programming and statistical analysis, MTS is a powerful
tool to profitability. Rarely known to average trader, mechanical
trading is used by most market professionals. The presentation will
share an introduction of Mechanical Trading System and how to build a
Portfolio of Trading Systems.
Building Portfolio Trading System
Average Trader: Maximise Profit
Season Trader: Minimise Risk, Preserve Capital, Consistent Return with small Profit, once awhile make outsized return.
"There are bold traders, there are old traders, but there are no bold and old traders."
Mechanical Trading System
Precise sets of trading rules and designed to be mechanical in nature
To provide trading signals when prescribed conditions are fulfilled when at what price to enter or exit
Why Mechanical System?
Way to minimise risk by testing theory before risking capital
Diversify portfolio to smoothen equity progression
Past performance is not an indication of the future
Take time and effort to learn the ropes
Prone to mistakes while converting good ideas into reality
Key Watch Out
Curve fitting - fit data with the system and see which one works well
Future leak - looking into future data to come up with past signals
Snake oil - black box system with no logic or code disclosed
Tradability and slippage
"If it is too good to be true, it if NOT TRUE"
3M of success
Mental - manage emotion while trading own system
Building a Trading System
Market Condition: High and Low Volatality
High Volatility - momentum trading combine with swing trading (momentum, oscillator and short period indicators)
Low Volatility - Trending following (MA cross over, channel and bands), low profit potential, options trading etc.
Time Frame: Relative to different markets
Intra day - ticks to hours
Short term few days to weeks
Medium term - few weeks to months
Long term - months to years
Instruments: Stock, ETF, Options, Futures, Commodities, Forex
Moving average crossover
Volatility open range breakout
Manual order entry at starting point for system
Broker assistant required at certain conditions
Fully automation suitable for HFT (High Frequency Trading)
Walk forward using past data to develop system and run sysem into future.
Nonoptimized: one set of variable throughout system life
K-ratio - smothenss of equity curve
Average bars held
Sharpe ratio - risk adjusted measure
Trade by trade analysis
Monte Carlo simulation
Risk of ruin
Tools of the trade
Datasource EOD or RT
Backteset on Donchian Breakout (Turtle system)
Buy at breakout of 20-day high or Sell at break down of 10-day low.
Annual return 16% over 4 years, Draw down -20% but k-ratio and sharpe ration < 1%
Fixed lot size vs leverage upside, above test based on 1 standard fix lot size.
Size of Trading System
Starter 10k-30k expect 100% pa but limited to max 3 instrument and possible to blow out ac
Mediium 30k - 50k
Full 50k - 100k
Global > 100k expect 30-40% pa
Portfolio Trading System
Comprises combination of systems
Covering different time frame
Spread over differnt instruments
Utilising different approaches