Several years ago, my friend John and I collaborated to come up with a system to automatically trade futures contracts. We weren’t thinking of having a super-computer that would scalp trades in nanoseconds … we couldn’t compete with the big boys on that score with their huge budgets and armies of programmers. We were just thinking of automating the trading process. There are many advantages to having auto-trading systems:
- they will run without human intervention (theoretically)
- they will take the emotion out of trading … you trust the program will do what it’s programmed to do and not depend on a human to pull the trigger.
We used the NinjaTrader platform then and I quickly learned the programming language used in it, which was C#. We chose the NinjaTrader platform at that time because it came with a momentum indicator not available anywhere else for free. Our first thrust was to come up with a program to make quick trades to capitalize on the market’s frequent bursts of momentum. I buried myself in the task for 6 months creating many, many programs and doing back-testing on them. We eventually got a system that worked to our satisfaction based on historical data. But it did not do well in live trading. After several more iterations we abandoned it.
Since then, John has continued to study trends and try different proprietary indicators and he thinks he has found one that has been performing well for him for a while. So we came back together last year to try again at creating an auto-trading system.
This time around we’re using TradeStation, the cadillac of trading platforms. A platform built for traders, with lots of bells and whistles, lots of third party tools and services, and lots of back-data. Even though I’ve never used their own programming language before, it’s pretty easy to learn and program with … it’s called “EasyLanguage” (EL), haha. So I was able to master EL fairly quickly and began churning out all kinds of auto-trading strategies, indicators, and other analysis techniques.
It felt good to be productive and be at the top of my game. God only knows how my self-esteem has suffered in these last few years feeling lost and a fish out of water.
Once again, I buried myself in this task. John and I put our heads together to come up with a trading strategy that could be profitable. Program after program would back-test well for a year or two back, but none of them performed well past 4 years back. We had a technically superb environment, we had the tools, the indicators, we have the brains, we have the experience, we knew what we were looking for, yet we couldn’t come up with a program that was profitable in the long-term. It looked like history was going to repeat itself. Then everything turned when we uncovered the secret sauce. John remembered a little nugget that he heard in a trading course he went to several years ago which cost him mucho dinero. When we applied that nugget to our trading system … voila! it became profitable. Profitable for 5 years, 10 years, 20 years back! It surpassed the gold standard of how trading systems are measured.
I don’t know if you can truly appreciate how significant that accomplishment is. A program that is profitable year-in and year-out for 20 years means that it will weather anything that the market can throw at it. Think back on all that has happened in the market for the last 20 years … black mondays, flash crashes, financial crises, Lehman Brothers, tech bubble, housing bubble, “irrational exuberance”, great recession, quantitative easing, and on and on. A program that can trade through all these scenarios and still be profitable is remarkable indeed.
We have been running our first auto-trading system in Simulated Mode for a while and then in Live Mode and it has been performing well. So we managed to come up with a winning auto-trading system this time around after all. And now there’s no stopping us … we are continuing to work on and churn out winning auto-trading systems. Dow and Russell futures, commodities futures, currencies, forex, individual stocks are beckoning to us … there are many, many opportunities available. There is value in diversification so later on we will be putting together baskets of strategies that complement each other.
———————
Related Posts: