Algorithmic Trading Made Simple (1)

In this post, we’ll take a look at:

Building a Trading Robot Without Programming

 

There are times you, or anyone, may think you know everything you need, and you can do best. TRADERS may also think they know everything, and they are ready to make big profits in the financial markets.

Most of the times, technical plus fundamental analysis are the ceiling of knowledge a trader has acquired through some course on the Internet, and he or she dreams enormous success in his or her financial future, thinking they literally know everything!

God forbid that these traders make a profit at the very beginning of their work. Then, they call themselves the best trader, and this is the beginning of the catastrophe and successive losses because of their excessive pride that “no, I am certain that I will definitely get a lot of profit in this or the next trade covering the previous losses”.

There are few people who seek to learn financial markets scientifically and fundamentally. One of the recommended ways to trade in the financial markets is to use modern tools and science—algorithmic trading. Previously, in an article entitled An Introduction To Algorithmic Trading, we have talked about almost everything in this regard. Now let us show you the output of algorithmic trading in a practical way by providing an example.

 

Algorithmic Trading Software

Regarding algorithmic trading, various software have been provided; Forex Strategy Builder (FSB), and StrategyQuant X are two examples.

In this article, StrategyQuant X software is used, and with the help of this software, building trading strategies, performing robustness tests, and optimization of the strategies will be elaborated.

The target market and the share will be the Forex market, and EUR/USD (Euro vs US Dollar), the 30-minutes timeframe. Other details will be explained in the following lines.

 

Algotrading Without Programming; StrategyQuant X

A trader, no doubt, needs a trading strategy. A trading strategy is simply knowing how to enter a trade and how to exit. In other words, If a strategy (or robot) has very good entry and exit quality in its trades, then it is considered an acceptable trading strategy.

Strategies should help a trader to stop irrational losses first, and to make profits after that.

There are two important implicit topics, any trader should answer. One, building a trading strategy manually, i.e. writing the rules and trading conditions on pieces of papers is time-consuming. Two, how this strategy can be trusted?

Moreover, programming is needed to convert the notes into a trading system able to run in MetaTrader, or other trading platforms. (Let us ignore the challenges, obstacles, errors, and problems of programming for now).

So, it should be remembered that building a trading strategy can be time-consuming, and the result cannot be trusted.

The good news is that StrategyQuant X manages both issues.

 

The Algorithmic Trading Laboratory

It takes more than 100 hours to comprehensively cover different parts of the software StrategyQuant X. Therefore, in this article, everything is as concise and useful as possible.

We’re going to start building various trading strategies for EUR/USD (30-min timeframe) in the Forex, using StrategyQuant X software in 4 steps.

 

1) Data Manager

The very first step to create a trading strategy for EUR/USD, for instance, is to prepare the market’s historical data of EUR/USD for backtest.

Since it is impossible to have any kind of data about the future, and all the words and writings are just predictions of the future, so we need to check the performance of the generated strategy in the past, and on the historical data of the market. It is called backtest.

 

What is Tick Data?

A tick is the smallest unit of price in the financial markets. In fact, each tick means one price change in the market. So, if we have the tick data of EUR/USD, for example from 2010, that means we have all the price changes of EUR/USD from 2010, which is the most complete type of data.

There are other types of data including M1 (1-minute), H1 (1-hour), D1 (daily) that are, certainly, as complete as tick data. Data other than tick, only deal with the OHLC, or the Open, High, Low, and Close prices of the candlesticks.

 

StrategyQuant made it simple. To download the tick data for EUR/USD, simply we refer to Data Manager and “Dukascopy data”. Dukascopy can be considered as one of the most reliable sources for downloading the data of various markets and shares. Any data you might need is available on Dukascopy.

 

Choose EUR/USD in Forex – Majors category and download the tick data from the middle of 2003.

There are also other sources available, such as Darwinex, Yahoo Finance, and Crypto. You can use them if you want; but they are not as good as Dukascopy in terms of accuracy and completeness.

Tick data downloaded for EUR/USD from Dukascopy since 2003.

 

After downloading the data, which may take several minutes depending on your Internet connection, everything is ready to start building trading strategies. Every strategy, once built, is instantly backtested using the downloaded tick data, and its performance in the history of the market is immediately shown to us.

2) Building a Trading Strategy

The main duty has just begun. What do we need for creating a trading strategy?

Probably, a trader needs to use some indicators, and define a stop loss and a profit target first. Then it comes other items, money management, etc. Concisely, there are several aspects that need to be taken care of when creating a trading strategy. Stop loss and take profit, number of conditions, specifying the trading platform and the timeframe, advanced controls, choosing indicators, and money management are some of the aspects a trading strategy includes, and a trader must know what he or she is doing in each item.

Happily, a good distinction is made between different aspects in StrategyQuant X. in Builder (or the factory of creating trading strategies), there are 10 different tabs, each tab is dedicated to a specific aspect of the market. Let us take a quick look at different tabs.

 

StrategyQuant X and Different Aspects of the Market

1- What to Build

The first tab is dedicated to the strategy type—whether it is a simple strategy running on one symbol and timeframe, or a multi-timeframe or multi-symbol one which at one main chart and additional charts, which can be just another timeframe of the original symbol or totally different symbols/timeframes.

Also, there are various options for stop loss and profit target including ATR-based stop loss and take profit, using the indicators’ levels, and limiting SL – TP ratio.

2- Genetic Options

In this tab, artificial intelligence genetic algorithm is actually used. This part is very similar to the birth of humans. So that first a series of trading strategies are made completely randomly. For example, 100 trading robots for the beginning.

Then these trading robots are combined two by two, which results in better and higher quality trading strategies.

Finally, from the combination of the strategies, there will be 50 better strategies. These strategies are again combined with new strategies, which is called “generation”, and finally the best strategies will be saved.

Of course, the explanation of genetic evolution requires a separate article.

3- Data and Trading Platform

One of the most important aspects of trading in the financial markets is the selection of market, symbol, and timeframe. In the data tab, we select the desired share, timeframe, trading platform and the data required to perform the backtest.

Simply choose your platform, chart, timeframe, etc.

4- Trading Options

Do you want the trades to be completely closed on a specific time on Friday before the market is closed? Do you want to limit the number of trades to 15 trades during the day?

The trading robots control panel is here. In this section, different restrictions can be set for the trading robots.

5- Building Blocks

In this tab, which is perhaps the most important one, the selection of indicators and oscillators and generally the tools used to build a trading strategy should be done. Also, different entry and exit types of trades (market execution, pending orders, etc.) will also be selected by the trader.

 

 

6- Money Management

Money management can be considered as one of the wings of success in trading. There are 7 types of money management (including Martingale) in StrategyQuant X that cover different markets (stocks, crypto).

Of course, it is possible to add a personal money management to the trading strategy by programming. But it seems not necessary for the beginning.

7- Ranking

Ranking is the last tab of building module, and it focuses on advanced filtering of the generated strategies based on the traders’ criteria. Each trader may have specific expectations. All the expectations are defined as filters, and strategies that cannot meet the minimum requirements will be removed.

 

Conclusion

Various parts of the software StrategyQuant X Builder were explained  in a very brief way. In fact, algorithmic trading without programming is possible using the software SQ X. One of the algorithms was mentioned—the Genetic Evolution.

Of course, we will learn more about this algorithm and its function in other articles.

But what is important is that SQ X considers everything. In each tab, a specific aspect of creating a trading strategy is considered and the settings are made by the trader. Finally, StrategyQuant X produces trading strategies, and the results will be something as the picture below.

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