algorithmic trading

Posted on Jan 23, 2018 by Kris Longmore
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This is the third in a multi-part series in which we explore and compare various deep learning tools and techniques for market forecasting using Keras and TensorFlow. In Part 1, we introduced Keras and discussed some of the major obstacles to using deep learning techniques in trading systems, including a warning about attempting to extract meaningful signals from historical market data. If you haven’t read that article, it is highly recommended that you do so before proceeding, as the context it provides is important. Read Part 1 here. Part 2 provides a walk-through of setting up Keras and Tensorflow for R using either the default CPU-based configuration, or the more complex and involved (but well worth it) GPU-based configuration under the Windows environment. Read Part 2 here. Part 3 is an introduction to the model building, training and evaluation process in Keras. We train a simple feed forward network to predict the direction of a foreign exchange market over a time horizon of hour and assess its performance. [thrive_leads id='4507'] . Now that you can train your deep learning models on a GPU, the fun can really start....

Posted on Sep 06, 2017 by Kris Longmore
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This article is adapted from one of the units of Advanced Algorithmic Trading. If you like what you see, check out the entire curriculum here. Find out what Robot Wealth is all about here. If you're interested in using artificial neural networks (ANNs) for algorithmic trading, but don't know where to start, then this article is for you. Normally if you want to learn about neural networks, you need to be reasonably well versed in matrix and vector operations - the world of linear algebra. This article is different. I've attempted to provide a starting point that doesn't involve any linear algebra and have deliberately left out all references to vectors and matrices. If you're not strong on linear algebra, but are curious about neural networks, then I think you'll enjoy this introduction. In addition, if you decide to take your study of neural networks further, when you do inevitably start using linear algebra, it will probably make a lot more sense as you'll have something of head start. The best place to start learning about neural networks is the...

Posted on Jul 20, 2017 by Kris Longmore
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Earlier this year, I attended the Google Next conference in San Francisco and gained some first hand perspective into what’s possible with Google’s cloud infrastructure. Since then, I’ve been leaning on Google Cloud Platform (GCP) to run my trading algorithms (and more) and it has become an important tool in my workflow. In this post, I’m going to show you how to set up a GCP cloud compute instance to act as a server for hosting a trading algorithm. I'll also discuss why such a setup can be a good option and when it might pay to consider alternatives. But cloud compute instances are just a tiny fraction of the whole GCP ecosystem, so before we go any further, let's take a high level overview of the various components that make up GCP. What is Google Cloud Platform? GCP consists of a suite of cloud storage, compute, analytics and development infrastructure and services. Google says that GCP runs on the very same infrastructure that Google uses for its own products, such as Google Search. This suite of services and infrastructure...

Posted on Apr 12, 2017 by Kris Longmore
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  This is the final post in our 3-part Back to Basics series. You may be interested in checking out the other posts in this series: Part 1: An Introduction to Algorithmic Trading Part 2: How to Succeed at Algorithmic Trading We've also compiled this series into an eBook which you can download for free here. Nearly all research related to algorithmic trading is empirical in nature. That is, it is based on observations and experience. Contrast this with theoretical research which is based on assumptions, logic and a mathematical framework. Often, we start with a theoretical approach (for example, a time-series model that we assume describes the process generating the market data we are interested in) and then use empirical techniques to test the validity of our assumptions and framework. But we would never commit money to a mathematical model that we assumed described the market without testing it using real observations, and every model is based on assumptions (to my knowledge no one has ever come up with a comprehensive model of the markets based on first principles...

Posted on Feb 04, 2017 by Kris Longmore
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This is the first post in our 3-part Back to Basics series. You may be interested in checking out the other posts in this series: Part 2: How to Succeed at Algorithmic Trading Part 3: Backtesting in Algorithmic Trading This is the first in a series of posts in which we will change gears slightly and take a look at some of the fundamentals of algorithmic trading. So far, Robot Wealth has focused on machine learning and quantitative trading research, but I had several conversations recently that motivated me to explore some of the fundamental questions around algorithmic trading. In the next few posts, we will investigate questions such as: What is algorithmic trading? What can algorithmic trading do for me? What are the pre-requisites? What should I think about before getting started? What's all this fuss about curve fitting and robust optimisation? Why should I care? So without further ado, lets dive in! What is Algorithmic Trading? At its most basic level, algorithmic trading is simply the automated buying and selling of financial instruments, like stocks, bonds and futures. It requires a...

Posted on Oct 14, 2016 by Kris Longmore
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This post comes to you from Dr Tom Starke, a good friend of Robot Wealth. Tom is a physicist, quant developer and experienced algo trader with keen interests in machine learning and quantum computing. I am thrilled that Tom is sharing his knowledge and expertise with the Robot Wealth community. Over to you, Tom. Unlike most other businesses, algorithmic trading has the advantage of giving you almost instant feedback on how good you are in your business. For anyone who is numerically inclined this is a very attractive proposition. I have seen articles written about this subject but they have never really addressed a lot of the issues I have come across on my journey. In this post I would like to talk about this a little as an inspiration or perhaps a deterrent for all the people who read this and consider making money that way. Nothing could be more amazing, a system that runs by itself and consistently spits out cash to finance prolonged stays in Bali, South America or with your mom if that’s what you’re after. However,...

Posted on Jan 02, 2016 by Kris Longmore
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In the first post in this series, I explored mean reversion of individual financial time series using techniques such as the Augmented Dickey-Fuller test, the Hurst exponent and the Ornstein-Uhlenbeck equation for a mean reverting stochastic process. I also presented a simple linear mean reversion strategy as a proof of concept. In this post, I’ll explore artificial stationary time series and will present a more practical trading strategy for exploiting mean reversion. Again this work is based on Ernie Chan's Algorithmic Trading, which I highly recommend and have used as inspiration for a great deal of my own research. In presenting my results, I have purposefully shown equity curves from mean reversion strategies that go through periods of stellar performance as well as periods so bad that they would send most traders broke. Rather than cherry pick the good performance, I want to demonstrate what I think is of utmost importance in this type of trading, namely that the nature of mean reversion for any financial time series is constantly changing. At times this dynamism can be accounted for by updating the hedge...

Posted on Nov 24, 2015 by Kris Longmore
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Important preface: This post is in no way intended to showcase a particular trading strategy. It is purely to share and demonstrate the use of the framework I've put together to speed the research and development process for a particular type of trading strategy. Comments and critiques regarding the framework and the methodology used are most welcome. Backtest results presented are for illustrating the methodology and describing the outputs only. That done, on to the interesting stuff My last two posts (Part 1 here and Part 2 here) explored applying the k-means clustering algorithm for unsupervised discovery of candlestick patterns. The results were interesting enough (to me at least) to justify further research in this domain, but nothing presented thus far would be of much use in a standalone trading system. There are many possible directions in which this research could go. Some ideas that could be worth pursuing include: Providing the clustering algorithm with other data, such as trend or volatility information; Extending the search to include two- and three-day patterns; Varying the number of clusters; Searching across markets and asset...

Posted on Oct 30, 2015 by Kris Longmore
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This post builds on work done by jcl over at his blog, The Financial Hacker. He proposes the Cold Blood Index as a means of objectively deciding whether to continue trading a system through a drawdown. I was recently looking for a solution like this and actually settled on a modification of jcl's second example, where an allowance is made for the drawdown to grow with time. The modification I made was to use the confidence intervals for the maximum drawdown calculated by Zorro’s Monte Carlo engine rather than the maximum drawdown of the backtest. The limitation is that the confidence intervals for the maximum drawdown length are unknown – only those for the maximum drawdown depth are known. I used the maximum drawdown length calculated for the backtest and considered where the backtest drawdown depth lay in relation to the confidence intervals calculated via Monte Carlo to get a feel for whether it was a reasonable value. Below is a chart of the minimum profit for a strategy I recently took live plotted out to the end of 2015, created using the method...

Posted on Oct 27, 2015 by Kris Longmore
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In the first part of this article, I described a procedure for empirically testing whether a trading strategy has predictive power by comparing its performance to the distribution of the performance of a large number of random strategies with similar trade distributions. In this post, I will present the results of the simple example described by the code in the previous post in order to illustrate how susceptible trading strategies are to the vagaries of randomness. I will also illustrate by way of example my thought process when it comes to deciding whether to include a particular component in my live portfolio or discard it. I tested one particular trading system on a number of markets separately in both directions. I picked out three instances where the out of sample performance was good as candidates for live trading. The markets, trade directions and profit factors obtained from the out of sample backtest are as follows: USD/CAD - Short - Profit Factor = 1.79 GBP/USD - Long - Profit Factor = 1.20 GBP/JPY - Long - Profit Factor = 1.31 Next, I estimated the performance of...