Automate or die

There is a deep question I keep asking every time I try to automate something: “How come the trading community is not progressing faster with the automation?”. Last couple of years you hear about deep learning algo’s who are created by companies like Google or IBM beating humans in a games like Jeopardy, Chess or even Go and this keeps me thinking: “when trading comes along”? Who will be the last dumb standing “only with the platform and one pair of eyes, …eh and maybe twitter account”? When this time comes? I think this time is much closer then we think. I do not want to sound gloomy and grumpy, our trading game is much complex than a set of few few rules, but I want to point out this:

the soner you start automating, the better prepared trader you will become

Here are my few cents on setups I believe will add value into your automation arsenal. Out of these setups you can create strategies and out of strategies, trading plans.

Data (futures and spot* products only):

• daily, weekly and seasonal ranges – average them, compare them, project them
• intraday session ranges (asian, europe, us) – average them, compare them, project them
• time of the day, day of the week, day of the month (end of session, end of quarter, quadruplewitching, end of year – what is market behaviours during these periods, quantify that
• market rythms after certain setups (news driven events, major areas broken, key stops taken)
• yesterday High, yesterday Low (yH,yL) – how quickly (timewise) it gets broken? Rythm tells what market we are in (accumulation, distribution, manipulation)
• sequencing of the intraday session moves – how does one product move on a day to day basis and what is the product structure inside each session. Quantify and compare
• correlation analysis – look for massive divergences of pairs that has been highly correlated recently
• how do we close, how do we open, where is the balance  at this point, daily and weekly
• what are the sequences at key turning points, how do they look like
• what is the price doing at the bid x offer in last 5minutes of closing, first 5minutes of open
• what the price doing during holiday season
• going bit lower:
  – any spoofers around, where they sit, does market react to them. If so, use that
  – absorbtion patterns: responsive or initiative (offer lifted, bid hit)
  – who is fucked (big clip sizes left at the market extremes, unfinished auction)
  – market delta: any divergences between price and BxA volumes

Everything I have mentioned is quantifiable and rules how to spot these setups can be created. You can then use these rules to stack the odds in you favor almost automatically and build strategies around this. This will give you an extra edge ahead of crowd. The only choice you have to make is to look at the odds and take the trade. If you combine the automation and stats, you will be better prepared trader for the trading opportunities of the future.

Like the pit traders used to say: you eat what you kill, … so dont get eatean.

lechiffre