Algorithmic Trading

The best Forex books list: 1. Japanese Candlestick Charting Techniques – Steve Nison. Steve Nison is arguably the “grandfather” of candlesticks in the Western world, he is the one deemed responsible for bringing Japanese candlestick charts (which some say go back to the late s in Japan) to the Western trading world.

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Top down approach

This was the second part of the Build Better Strategies series. The third part will deal with the process to develop a model-based strategy, from inital research up .

How can we use lambda in the mean reversion example? When a is nonzero, the price change y t -y t-1 has a linear relationship to the deviation of the previous price from the fair price, y t-1 -Mean. The mathematical method to determine the slope a from many data pairs y t -y t-1 , y t-1 -Mean is linear regression. From a you get the half-life parameter Lambda. The market is mean reversing when a is negative. Set our price close lagged by -1 day.

Subtract todays price close against yesterdays lagged close 3. Subtract yesterday price close — mean of the -1 lagged price close 4. Calculate yt-1 and ytyt y. The steps look correct. For the R code I dare not judge the correctness — put in some data and check if the half life value makes sense. My next question is, can this be applied to a linear trend? I tested the above procedure on the SPY from inception to present and the half life was Doesnt look to correct even thought the procedure looks correct.

Jc — have you obtained accurate results using this half life method? I have, and yes, it can be applied to a trending asset, especially to SPY. But when it trends, check how you calculate the mean: Use 20 days or so. It contains a in depth description of mean reverting algos and half life calculation.

Ok if i did present to 20 days, that gives me the half life of the previous 2o days? What about the rest of the sample size? Do we then roll this on a 20 day basis from inception to present? Does it mean the half life is likely to change as the series rolls into the future? Sure, you must roll. For trading you want the mean and halflife from today, not from 10 years ago. Since price series are nonstationary, the mean changes all the time.

The halflife is much more stationary, but it can also change under different market conditions. I made my living doing volatility arbitrage, but that game is finished.

I would do well for a time, but then the spread between the futures would move to a new level usually wiping out whatever profits I had. I learned that this was because of something called stationarity. Whenever the spread would start trending I would lose. Do you think my problem might be solved by using a Kalman filter as suggested, to come up with dynamic hedge ratios? Would the hedge ratio change fast enough during real time trading to save me?

You can use a Kalman filter for almost anything, but for adapting the hedge ratio there are also simpler methods, such as permanent linear regression of the previous N price pairs. The hedge ratio is then the linear regression slope. I believe the link for the blog post on Kalman filter changed: Thanks for the link.

I have no ready code, but the usage is described in the pdf manuals to the packages. Am I now unknowingly in the High Frequency business? If that is true, can I as an individual trader compete even with an algo , with the big guys? Both contracts trade at the CME…. Highpass filters remove long-term trend from a price curve, including the stationary mean. The result is a curve that oscillates around zero with the same short-term fluctuations that the price curve has.

Much easier than describing this in words is it to just apply a filter and experiment with it. Your email address will not be published. This site uses Akismet to reduce spam.

Learn how your comment data is processed. The most frequent are: Momentum strategy profit curve For the sake of simplicity all strategy snippets on this page are barebone systems with no exit mechanism other than reversal, and no stops, trailing, parameter training, money management, or other gimmicks.

Mean reversion profit curve 3. Statistical Arbitrage Strategies can exploit the similarity between two or more assets. Price constraints A price constraint is an artificial force that causes a constant price drift or establishes a price range, floor, or ceiling. Cycles Non-seasonal cycles are caused by feedback from the price curve. Often many such cycles are superposed on the curve, like this: Clusters The same effect that causes prices to oscillate can also let them cluster at certain levels.

Curve patterns They arise from repetitive behavior of traders. Gaps When market participants contemplate whether to enter or close a position, they seem to come to rather similar conclusions when they have time to think it over at night or during the weekend. Autoregression and heteroskedasticity The latter is a fancy word for: Price shocks Price shocks often happen on Monday or Friday morning when companies or organizations publish good or bad news that affect the market.

Price shock exploiting system The blue equity curve above reflects profits from small and large jumps of currency prices. Thanks a lot Best. Hi I cant reproduce any of the results above. MetaTrader 5 delivers complete solutions for integration with popular liquidity providers on the Forex market and enables direct connectivity to global financial exchanges. All gateways are easy to operate.

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U are the real man especially wen one considers the adrenaline pump while day trading. I love the challenge of day trading, fast and furious and when you get to the point of understanding what the market makers,brokers, institutions are looking at, you can then scalp some profit out of the market.

But, really tough to get to that point and hard on your account, your emotions, your sleep patterns, your free time, your relationships. So, Nial I must agree overall with your summation. If you want to give up all you value in life just keep day trading. The market will eventually eat you up one way or the other. Hi Niall, I agree 4 hour and day trading is best but as ive said before i know people who make a living trading 15 minute charts.

They say the main problem is people are greedy and try for too many pips in one go. As regards the stop hunters which i do think exist, you need a big stop loss but trail it or if your confident of the trend dont have a stop loss.

Nial,i love this article. Thanks for all the quick answer to all my questions. Agree with you totally i dont know why anyone would want to do that either. Thanks Nial, it is because of your weekly education that I am still doing forex, it took me 8 months of complete failure and 3 months of reading your articles weekly and I posted a profit.

Thanks and continue with the same spirit. Though I would request for an article on position placing and leveraging before entering a trade. Thank you once again. Now that I can agree to. But stop hunts happen on larger time frames as well, in fact even more so since the liquidity pool is generally deeper with a daily chart! Now I want to make money. I need the discipline of not looking at my charts every hr or so or staring for hours trying to find a setup. Nial, you make trading fun again, thanks.

At the end, result was incredible. MY account demo increased more then last 10 days of trading, I made a great job on the side AND final one, I had restful sleep! Just to point out for the 3th time: I still practice demo! You do not provide enough liquidity to justify such a hunt. Brokers are NOT hunting your stops. Stop hunting is very real. The charts show this evidence. This is a phenomena that has been happening for decades.

Awesome stuff Nial…been trading the 1 hour chart with a lot of effort, sometimes not even sleeping…will definitely consider: Brilliant article and all valid points. I began learning trading via day trading tactics and was inconsistent with winning trades on my demo account.

Since using Nialls methods, knowing when to and when not to trade and using higher time frames, consistency of winning trades has improved immensely. Why such traders like George Soros, Peter L. Brandt or William J. Even on the 4-hour charts, you have 6 times as much false signals as on the daily charts. I also prefer quality over quantity. Since I only trade off of the daily and weekly charts. I have tried it and really lost some money. Yes the brokers make more money and you have to be a lot more active.

Your first chart usdjpy 15min , all I saw was an aggressive C sell and then stop and reverse for a long all on a simple but effective ABCD pattern. If we both average 50 pips a day I will make more because my stops will be tighter which means a larger position size.

I will look at pin bars and structure and fib ratios but they all have to line up at potential reversal zones. I do enjoy most of what you share, Thank you , I appreciate it, but on this subject I wont change my mind.

The 12th, which is also the current trade is already in profit heading towards my target. I had already sworn and taken the oath to be a higher time frame addict as long as fxtrade is concern.

Nial, you are blessed. Hi Nial, u suprised me today. It shall be well appreciated if you do an article with winning strategy of day trade. Because day trade is something you feel that you are in the market. Nial, thanks for the great article. I can see it benefiting the broker because of more trades. Looked at binary options recently and they are short term nightmares.

How you can make money forecasting what will happen in the next 1,5,10,15,30minutes is beyond me, but I have an open mind and tried a demo account. I have made steady money in the last year using Nials course and only daily and 4hr charts.

Please listen to him. You can succeed in day trading if you follow a strategy that is based on achieving pips per trade times 4. However, the higher you fly , the clearer your vision. But they did tell me, their intial stop has to be 70 pips — why? Because, as you said Brokers have taken the traders stop out!!!

Although I agree with you about clarity in trading. Not all day traders lose — some make a fortune. Lets not pretend though Daily time frames are the Holy Grail.

For every winner in trading there is a loser. Risk reward is the holy grail period!!! Most Day Traders Overtrade.

I believe sucessful trading is based on the pychology of the trader — not the time frame traded. When someone can show me there are no succesful day traders out there at all — Then I stand by that statement!! Hi Nial, You are spot on mate. Keep up the good work Nial. Some traders do make a consistent return on the smaller time frames. I personally like to look at the weekly and daily time-frames to find key levels and obvious trends.

This does not aid sound decision making! Thats right day trading sucks ,i lost lots of money by day trading but now i only trade with 4h and daily chart and have much more good profitable trades than day trADING.

Dear Nial, I agree what u said in this article. Its a very useful article for all new traders. Good luck and Thanks for your support. Nial I think that this is very true and more so about todays choppy market. Having said that trading the longer time frames is for me more taxing as in an 8 hr day I get 2 to 3 candles, then if there is a movement in the 12 — 16 hours I am away I miss the trade, and they are few and far between these days.

The daily time frames are far more difficult to read and the odds of getting it right for me are not good. My solution to this is the 1 hour charts with wide SL and TP with very low contracts that can take up to 3 — 4 days sometimes. Let us our forum members take an OATH to adhere to the bigger time frames of 4 hours and above from now onwards! Ya hit it on the head again Nial.

I can never thank you enough! Day trading was what I tried to do at first because I thought it was cool and less risk because of smaller stops however once you learn about position sizing you realise this is not the case. Even the 4hr has nothing on a daily chart in my opinion. Although it can provide nice entries if used in conjunction with a daily chart. I do agree with what you said about the difficulties of day trading.

Indeed, having day traded myself for three months I know it is really tough to make a consistent profit. However, it does not mean day trading should be avoided by anyone.

There is no harm in trying, there is harm in keeping your mind closed. I only trade the daily chart on the major pairs. I really love the pin bars on the daily chart. Daily chart is the best chart for price action. Hows is Australia n the crocs. I think now is the time as I am noticing their value as time progresses.

Your timely article reminds me of the perils of short term trading. I have argued with my self for a long time to stop using lower time frames. Just a few days ago I started to do as you teaches. I find your way very interesting and i agree that higher time frames are more reliable. I hate day trading as well, much easier and less stressful to trade higher time frames. Even in the higher time frames I would find it difficult to know where to put my stop loss. I can sense that the AUD is falling and it makes sense to go short but the daily time frame is so unpredictable.

You have a bullish pin bar followed by a strong bearish candle. What is your recommendation on trading these choppy markets in terms of risk? Thanks Nial your emails are such a wealth of knowledge to me. Your email address will not be published.

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Top down approach As a trading educator, it makes me HATE day-trading even more when I think about all the trading websites out there promoting it and how a lot of them are geared towards beginner traders, not to mention how heavily day-trading and scalping are discussed in almost every public trading discussion forum on the internet.

Stop-hunters love day-traders Day traders naturally have stop losses closer to the market price since they are typically trading intra-day charts and trying to get quick gains with tight stops. Checkout Nial's Professional Trading Course here. Thank you so much Reply. Sergio August 31, at 8: Kwazi August 14, at 3: Thanks alot happy Reply.

Francois Haynes August 3, at 5: Nhlakanipho July 27, at Thank you very much Sir I have tried your method and it is working for me very well Reply. Adebayo Olajimi July 17, at Andile Sikrweqe July 16, at 5: Thanks for enlightenment sir. Rob March 22, at 5: Irmad March 8, at 2: You are the best, my inspiration Reply. Emeka Egwim November 29, at 8: Ahmadi July 15, at 7: So, you can punch me on the face… Thank you for make me sure that this is the way, even so late for me ; Reply.

Johnny Snyman June 19, at Hi Nial I have been there day trading and you are absolutely correct. Daniel May 10, at 8: Hi Nial Such a pity I did not discover your blog a few weeks earlier…my account would still be alive if I did.. Thank you Daniel Reply. Roger Steadman April 12, at 1: Abed March 14, at Rahmat March 12, at 7: Luís Paiva February 27, at 4: Jez February 10, at 9: Timileyin January 26, at 6: Great Article Nial,you are always on point.

Bob Williams January 25, at Michael January 8, at 7: Yet, another great article. Ivane Zurabishvili January 4, at 2: Hello Nial, this is very necessary article, thank you very much! Omer Atay December 9, at 8: Atul Kapatkar November 29, at 4: I have suffered huge loss in Day trading. Higher time frame is helpful in keeping control on over trading and therefore preserve capital. Andrew P Jatta November 4, at 4: Thanks Nial, This article is very insightful for newbies like me who want to learn how to trade.

I hope to read more of your articles. Debra February 3, at 7: Paulo j October 29, at 8: Nial Fuller January 19, at 8: John February 6, at 8: Nial Fuller February 6, at Roy June 1, at Steve Epperson October 28, at 6: Snail October 1, at Khyati verdhan September 27, at Very very thank you sir You are the first person who tells the truth of market Reply. Taryn September 23, at 8: No words to Thank you , your course is really helping me.

I repeat thank you once more. Jonathan Egesie July 31, at 9: Clinton June 19, at 4: Great stuff Nial Reply. Helen June 18, at 6: Sthembiso May 19, at 7: Sympans May 18, at 2: Nial Fuller May 18, at 2: This website is about price action strategies Reply.

Justin February 14, at 2: Alex McCullie February 9, at 3: Day trading is a farce Reply. Justin August 29, at 9: David June 14, at 2: Nial Fuller June 14, at 3: Daniel July 2, at 8: Higher Time Frame trading rocks!!!