Category Archives: ATS

Algorithmic Trading System

ATS Development Meeting This Week!

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It seems that every year in April and May I get extremely busy with work and my professional socieites! I guess everyone wants to get as much done before the summer break and the same goes for me!

This coming Thursday I’m having my second meeting with the ATS team to see 1) who’s on board, 2) what the end game is for the ATS, 3) answer any questions they have, and 4) come up with with a project plan with milestones. My main goal is to have to have prototype ATS up and running by end of summer that focuses on Stocks first. If its successful then we’ll be adding in a Forex option, Genetic Algorithms, and Neural Nets.

I ask my readers to please be patient as I expect posting to become intermittent as the ATS project kicks off. I suspect it will take up a lot of my free time as I make my dream become a reality.  The best way to be alerted to any new posts when I do check in is to subscribe to my RSS feed and/or follow my Twitter postings.

I will keep everyone apprised of its progress and if the team is willing, share a few “sneak peaks” on how its shaping up!

Oh, I’ll be hosting the next Rapidminer Meetup this June and if no one shows up this time, I’ll drop it completely! That will be your loss, not mine!

ATS Development Takes Its Second Step

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I sat down with the proposed ATS development team yesterday as an initial meet and greet and gave them a very rudimentary overview of trading and what an ATS can do. I think my presentation was a success because the developers started asking me all kinds of architecture and data acqusition questions.

I was excited about the reaction because it made me believe that a connection was made between what we can accomplish with this project if we combine our skills.

The next step is for the members of team to come up with questions (scope, scale, requirements, etc) for me to answer and then meet within 2 weeks, we then sign NDA’s, and start development of a prototype. If all goes well, the prototype ATS will go into test mode sometime at the end of the summer.

Possible Plan B on the ATS

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I’m always thinking of Plan B’s for every project because I know that things don’t always go as planned.  So after not hearing from the Developers about setting Saturday’s meeting I figured that I need to line up some possibly another set of developers completely.

I’m thinking of reaching out to my Alma Mater’s (NJIT) Computer Science Department or just posting some flyers around campus.  Who knows, maybe some entrepreneurial C# coding student would be willing to put in the hours for a future share in the ATS’s returns?

ATS Becoming A Reality!

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I had a great meeting with my IT contact today. He’s sold on the idea and has two developers interested to work on the ATS project. I’m really excited that my vision of an ATS is becoming reality!

Man do I have some wild ideas for the ATS using GA’s and Neural Nets but we’re first going to build a simple prototype to see if it works. We’ll probably focus on stocks for now but ultimately I’d like to enter the currency markets as well.

The next step for me is to write a presentation and technical requirements, have a meeting, and get everyone to sign a confidentiality agreement.

The markets will recoil in horror the day my ATS goes live, or maybe it wouldn’t give a shit. :)

Quick Notes

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I’ve just gotten insanely busy but thats a good thing. Here are some quick notes:

1. I’m sitting down with a C# developer tomorrow to discuss building a Trade Bot (ATS) which will be better than Ugly’s ATS. I expect sooner or later our ATS’s will duel with electronic Samurai swords.

2. Unless I’m being completely faked out, I think the bottom is in.

3. I rotated out of Bonds yesterday.

4. My volatility indicator is collapsing after peaking at 2.9, its now at 1.7. That’s Bullish!

Using TraderXL Pro to Build an Algorithmic Trading System (ATS)

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Early last year I worked hard on building an Excel based Algorithmic Trading System (ATS) and I made considerable headway using TraderXL Pro and Yahoo real time quotes before I got distracted by the birth of my son. It’s since been ignored and sitting in a directory on my computer but I’m considering continuing its development this year. As part of getting my head around this task again, I decided to share with my readers some tips and tricks I learned so that you too can start building your own Excel based Algorithmic Trading System. I consider myself a power user of Excel and I use the backend modules of TraderXL Pro to do a lot of the basic analytic analysis.

For the more in depth analysis, I write my own macros and then apply them to any downloaded data I have. Tonight I want to touch on an old post again and share with you a trick on how to automate some calculations using TraderXL Pro. (The best part about the TraderXL Pro package is that I can simultaneously download stock data, apply my pre-built modules, and then link it to a real time (or delayed) quote interface. I did this all with “one click” of a button and used it extensively for my ETF Trend system.) I posted a free linear regression slope macro in my popular Build an ETF Trend System post which you could use to build a generic ETF trending system.

The post contained the Excel macro code, a spreadsheet with some ETF price data that readers could download, and that’s about it. You could apply the macro using Excel’s Run function but that’s about all you could unless you had the TraderXL Pro modules installed.  So for this post, I’m going to apply that same macro to the BulkquotesXL module, download new data, and automatically create the linear regression slope data “on the fly” (automating this task can save you hours of hard work if you are downloading hundreds of stock symbols daily so pay attention!), this of course means you have to install TraderXL Pro (trial version) on your system.

Step 1 – Download and install TraderXL Pro (use this package because it has a macro viewer in it)

Step 2 – Download my Excel spreadsheet (MasterDownloadNMT010108.xls) and open it. You should see the TraderXL Pro modules install into Excel

Step 3 – On the BulkquotesXL menu, select Download/Refresh Data. This will download the new data and create the sheets automatically

Step 4 – Copy “MasterDownloadNMT010108.xls!Module2.LinReg” exactly and without quotes into the Autorun Macro column of the BulkquotesXL Settings tab

Step 5 – Select Download/Refresh Data again. This will re-download the stock/ETF data and simultaneously create an 8, 13, and 26 Week linear regression slope columns.

That should do it! You now have over 15 stock/ETF symbols downloaded into separate sheets and a pre-built macro applied to each one. You could then link this data into another spreadsheet or set of calculations that will help you generate buy and sell signals (more on this topic later) for your ATS. In my future Excel based ATS posts, I plan on sharing with my readers how to build bigger macros, transform more stock data, and how to apply it to real time watch list that generates BUY/SELL signals. As with all my other posts, if you have any questions please leave me a comment and don’t forget to subscribe to my feed on the way out!

S&P500 Historical Perspective

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GSPC-Volatility-HistoricalCould a similar volatility pattern be emerging before our eyes? From 1991 to 1996, my volatility indicator showed a relatively low reading with a rising S&P500. After the Dot Com bust, my volatility indicator dropped to low readings and the S&P500 began advancing to new highs.

What happened after volatility increased in 1996 was the awesome S&P500 Bull run. I’m wondering if we’re see the same pattern repeat itself today? Are we setting up for another huge run in the markets? It’s too early to tell but its worth watching!!!

Was It A Buy Yesterday?

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My proprietary S&P500 volatility indicator didn’t issue a BUY signal yesterday. It came awfully close, but the one of the key thresholds wasn’t reached. I suspect that if the market sells off today again, which is likely, we could see a BUY signal. I’ll be monitoring the markets closely today and will reallocate money in my 401k if that happens.

Maybe I should put together an email alert list? If any reader is interested, send me your email address and I’ll email you an email “alert” should my model issue a Buy signal. Just use my contact form! Thanks!

S&P500 Volatility Report

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S&P500 Weekly Volatility ReportLast week my proprietary volatility indicator increased over the 0.00 threshold but it didn’t flash a BUY signal. My guess is that the intra week sell off didn’t scare enough people that the sub prime mess is Armageddon in disguise. I’ll just wait patiently with some cash on the sidelines if that happens or some other calamity.

The Death of the Trader

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I predict that Algorithmic Trading will become more common place over the next few years. Those traders that don’t understand it will probably end up working at McDonalds, those that do will have to hire eggheads super smart quantitative people to build proprietary algorithms.

For those at the cutting edge of financial markets, the use of highly sophisticated computer programmes, known as algorithms, is far from fantastical: it has been a key driver for the success of some of the world’s largest hedge funds.

One of the most profitable hedge funds is Renaissance Technologies. It has around $26bn under management and has yielded returns exceeding 30% for more than a decade. Clouded in secrecy, it is almost entirely staffed by scientists that use computers to make money. [via Financial Director]

I do believe that a non-algorithmic trader could still make money, perhaps a lot of money in this brave new world. How? If all the computers analyze the markets in using Gaussian distributions and assumptions, I believe they become susceptible to a financial asteroid. If one hits, the market will probably slide like crazy as sell after sell programs kick in!

Understanding Fuzzy Trend Following in Excel

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Building an asset trend following system is quite easy to do if you’ve read my tutorials. You gather your data, assign trend values (UP, DOWN), and then run it through a classification algorithm like YALE’s IBK operator. Doing this is what some people call Fuzzy trend analysis and its quite easy to do if you use YALE, but what if you don’t have the time to learn YALE? Is there another way to do it, perhaps using Excel?

The answer is YES!

Before I direct you to a place where you can learn how build a classification trend following model in Excel, we have to understand what the classification algorithm is and how it works. The classification algorithm I use is called “Knn.” Knn stands for “K nearest neighbor” and the best explanation I’ve found for what it is and how it works is from Kardi Teknomo’s website:

K-nearest neighbor is a supervised learning algorithm where the result of new instance query is classified based on majority of K-nearest neighbor category. The purpose of this algorithm is to classify a new object based on attributes and training samples. The classifiers do not use any model to fit and only based on memory. Given a query point, we find K number of objects or (training points) closest to the query point. The classification is using majority vote among the classification of the K objects. Any ties can be broken at random. K Nearest neighbor algorithm used neighborhood classification as the prediction value of the new query instance. [via Kardi Teknomo PhD]

If you spend some time on Doctor Teknomo’s site, you’ll find his fantastic tutorial, complete with his spreadsheet examples, explaining how to us Knn in Excel to make predictions.

So how do use his spreadsheet to build your own trend following system? I made this part easy on you, to follow along just download my version of the good Doctor’s spreadsheet.

Here’s what I did, first I modified his spreadsheet and populated it with 24 trading days of the iShares MSCI Japan Index EWJ and the iShares MSCI Singapore Index EWS ETF’s. What I wanted to do is predict EWS’s trend (+ for up, – for down) using the data for both ETF’s. Next, I changed the trend value to either + or -, in column D, and then changed the “K” cell value to 8.

Changing the number in the “K” cell tells the algorithm how many of your query cell’s neighbors it should look at to make its prediction. The spreadsheet then automatically calculated the correct trend value “+” for EWS after I inputed my preferred “K” value.

It’s as simple as that! Now you have, in a rudimentary way, the ability to create your own trend following system in Excel using neural net algorithms. Do spend the time learning how this algorithm works because its very powerful and you can easily incorporate it into an ATS or other quantitative analytic trading system.