Analytics

A big advantage of algorithmic trading is the ability to simultaneously trade a large number of strategies around the clock. But these strategies are only as reliable as the computer you trade them on. A forex VPS has become a permanent staple in my trading toolbox. I have a VPS with FXVM, with about 70 […]

This section of the roadmap focuses on strategy development using StrategyQuant. StrategyQuant is a comprehensive strategy development platform that uses genetic evolution to automatically generate novel strategies. These strategies can be subsequently funneled through a series of robustness tests, ranging from Monte Carlo simulations to walk forward optimizations, helping you select a strategy that is likely to maintain its edge […]

Like candlesticks, the Ichimoku indicator is a fine Japanese creation. Here I’ll explain how the Ichimoku is plotted, and use it to build a trend following strategy for the USDJPY. The complete strategy can be downloaded in the Free Strategies section…. Volume is seldom discussed in forex trading.  But as a stock trader would tell […]

Bollinger Bands are great at predicting upcoming price reversals. Here’s how you can build a countertrend strategy using its ‘free bars!’ The complete strategy can be downloaded in the Free Strategies section. Bollinger Bands are the gift that just… Like candlesticks, the Ichimoku indicator is a fine Japanese creation. Here I’ll explain how the Ichimoku […]

Trend following remains one of the most popular and reliable approaches in forex trading. We’ve all had the experience of witnessing an incredible trend, and wishing we had been a part of it. Such trends often begin after a shift in market fundamentals, and are subsequently maintained by herd mentality. Catching one of these big […]

Risk management is a cornerstone of successful trading. Most traders quantify risk by measuring the drawdowns incurred by their strategies or portfolios. Drawdown is the decline in account equity from a prior equity peak. For example, if your peak equity is $5000, and your current equity is $4000, you have a $1000 drawdown. As trading progresses, […]

The Quantitative Qualitative Estimation (QQE) indicator is derived from Wilder’s famous Relative Strength Index (RSI). In essence, the QQE is a heavily smoothed RSI. Both the QQE and traditional RSI are plotted below for the USDJPY. Notice how the traditional RSI and the QQE’s smoothed RSI line follow price action with little lag. Unlike the […]

Bollinger Bands are one of the marvels of technical trading. They consist of a simple moving average surrounded by a pair of upper and lower bands. These bands are placed at a certain standard deviation multiple above and below the moving average. Bollinger Bands are typically defined by two parameters – the moving average lookback […]

Like the MACD, the Awesome Oscillator (AO) is a momentum indicator that measures the difference between two moving averages. It is calculated as follows: Williams recommended the 5 and 34-period simple moving averages, though you are free to optimize these if you wish. Since the 5-period moving average reacts faster than the 34-period moving average, […]

The Kaufman Efficiency Ratio (ER) was developed by Perry Kaufman and is introduced in his excellent book ‘Trading Systems and Methods’. The ER serves to quantify the amount of market noise. Noise is the random and erratic price movement that surrounds any underlying market direction. The ER is calculated as the absolute net change in […]

Have you ever created a strategy that backtests spectacularly, only to see it completely fail in real-time? You’re certainly not alone. Unrealistic spread is a very common cause of overly optimistic backtest results. Here I’ll demonstrate how a low backtest spread can fool you, and offer some suggestions on how to backtest with realistic spreads. […]

We begin the next phase of our robustness testing workflow with the reduced basket of 56 GBPJPY strategies generated using StrategyQuant’s genetic algorithm. These 56 strategies managed to remain profitable when tested over an additional 5 forex markets. We will continue to shortlist robust strategies by conducting another difficult out-of-sample (OOS) test, in the form […]

After emerging from the rigours of optimization and robustness testing, it is time to verify our strategy’s performance using tick data. Tick data records every price movement over the historical period, helping maximize our backtest precision. Figure 1 below shows an example of AUDUSD tick data obtained from Tickstory, with numerous prices per second. Figure […]

Having shortlisted a basket of markets to develop your strategy on, the next step is to determine your entry rules. Your strategy’s entry is arguably the most important element of your strategy. The exit has a significant impact on your bottom line, but it is the entry that determines your ability to accrue floating profits. […]