Choosing a Platform for Backtesting and Automated Execution

However, like any money making activity, such trading has also consumed risk. Alamat email sudah terkait dengan sebuah akun Freelancer. The next level up from a home desktop is to make use of a virtual private server VPS. A poor choice in hardware and operating system can lead to a machine crash or reboot at the most inopportune moment. Upgrade does not include the release of a new product or added features for which there may be a separate charge. The decision making of the wonderful brain is not independent of time. I have spend one entire year of my career just by programming, testing and optimizing with past data every single strategy I was able to find online and on variuos different trading books.

From page Ernie writes about how at the retail level a system architecture can be split up into semi-automated and fully automated strategies. A semi-automated system is suitable if you want to place a few trades a week.

EXTENSIVE BENEFITS

For those that are new to the programming language landscape the following will clarify what tends to be utilised within algorithmic trading. This means that they can be used without a corresponding integrated development environment IDE , are all cross-platform, have a wide range of libraries for nearly any imaginable task and allow rapid execution speed when correctly utilised. It offers the most flexibility for managing memory and optimising execution speed. This flexibility comes at a price.

Development time can take much longer than in other languages. Despite these shortcomings it is pervasive in the financial industry. C and Java are similar since they both require all components to be objects with the exception of primitive data types such as floats and integers.

Garbage collection adds a performance overhead but leads to more rapid development. These languages are both good choices for developing a backtester as they have native GUI capabilities, numerical analysis libraries and fast execution speed. This is only if I felt that a Python event-driven system was bottlenecked, as the latter language would be my first choice for such a system. It has gained wide acceptance in the academic, engineering and financial sectors.

It has many numerical libraries for scientific computation. It boasts a rapid execution speed under the assumption that any algorithm being developed is subject to vectorisation or parallelisation. Despite these advantages it is expensive making it less appealing to retail traders on a budget. R is a dedicated statistics scripting environment. It is free, open-source, cross-platform and contains a wealth of freely-available statistical packages for carrying out extremely advanced analysis. R is very widely used in academic statistics and the quantitative hedge fund industry.

While it is possible to connect R to a brokerage is not well suited to the task and should be considered more of a research tool. It also lacks execution speed unless operations are vectorised. It is free, open-source and cross-platform. However, it contains a library for carrying out nearly any task imaginable, from scientific computation through to low-level web server design.

In particular it contains NumPy, SciPy, pandas, matplotlib and scikit-learn, which provide a robust numerical research environment that when vectorised is comparable to compiled language execution speed.

Python also possesses libraries for connecting to brokerages. This makes it a "one-stop shop" for creating an event-driven backtesting and live execution environment without having to step into other, more complex, languages.

Execution speed is more than sufficient for intraday traders trading on the time scale of minutes and above. For these reasons we make extensive use of Python within QuantStart articles. The term IDE has multiple meanings within algorithmic trading. Software developers use it to mean a GUI that allows programming with syntax highlighting, file browsing, debugging and code execution features. While some quant traders may consider Excel to be inappropriate for trading, I have found it to be extremely useful for "sanity checking" of results.

Brokerages such as Interactive Brokers also allow DDE plugins that allow Excel to receive real-time market data and execute trading orders. Despite the ease of use Excel is extremely slow for any reasonable scale of data or level of numerical computation. I only use it to error-check when developing against other strategies.

In particular it is extremely handy for checking whether a strategy is subject to look-ahead bias. This is straightforward to detect in Excel due to the spreadsheet nature of the software.

If you are uncomfortable with programming languages and are carrying out an interday strategy then Excel may be a good choice. The market for retail charting, "technical analysis" and backtesting software is extremely competitive.

Features offered by such software include real-time charting of prices, a wealth of technical indicators, customised backtesting langauges and automated execution. Some vendors provide an all-in-one solution, such as TradeStation. TradeStation are an online brokerage who produce trading software also known as TradeStation that provides electronic order execution across multiple asset classes. I am currently unaware of a direct API for automated execution.

Instead orders must be placed through the GUI software. Another extremely popular platform is MetaTrader , which is used in foreign exchange trading for creating 'Expert Advisors'. These are custom scripts written in a proprietary language that can be used for automated trading. I have not had much experience with either TradeStation or MetaTrader so I won't spend too much time discussing their merits.

Such tools are useful if you are not comfortable with in-depth software development and wish a lot of the details to be taken care of.

However, with such systems a lot of flexibility is sacrificed and you are often tied to a single brokerage. The two current popular web-based backtesting systems are Quantopian and QuantConnect.

The former makes use of Python and ZipLine, see below while the latter utilises C. Both provide a wealth of historical data.

Quantopian currently supports live trading with Interactive Brokers, while QuantConnect is working towards live trading. Algo-Trader is a Swiss-based firm that offer both an open-source and a commercial license for their system. From what I can gather the offering seems quite mature and they have many institutional clients. The system allows full historical backtesting and complex event processing and they tie into Interactive Brokers.

The Enterprise edition offers substantially more high performance features. Marketcetera provide a backtesting system that can tie into many other languages, such as Python and R, in order to leverage code that you might have already written. The 'Strategy Studio' provides the ability to write backtesting code as well as optimised execution algorithms and subsequently transition from a historical backtest to live paper trading. I haven't used them before.

ZipLine is the Python library that powers the Quantopian service mentioned above. It is a fully event-driven backtest environment and currently supports US equities on a minutely-bar basis. I haven't made extensive use of ZipLine, but I know others who feel it is a good tool. There are still many areas left to improve but the team are constantly working on the project and it is very actively maintained.

I have not spent any great deal of time investigating them. Institutional-grade backtesting systems such as Deltix and QuantHouse are not often utilised by retail algorithmic traders. The software licenses are generally well outside the budget for infrastructure. That being said, such software is widely used by quant funds, proprietary trading houses, family offices and the like.

The benefits of such systems are clear. They provide an all-in-one solution for data collection, strategy development, historical backtesting and live execution across single instruments or portfolios, up to the high frequency level. Such platforms have had extensive testing and plenty of "in the field" usage and so are considered robust. The systems are event-driven and the backtesting environments can often simulate the live environments to a high degree of accuracy. The systems also support optimised execution algorithms, which attempt to minimise transaction costs.

This is particulary useful for traders with a larger capital base. I have to admit that I have not had much experience of Deltix or QuantHouse. That being said, the budget alone puts them out of reach of most retail traders, so I won't dwell on these systems.

The software landscape for algorithmic trading has now been surveyed. We can now turn our attention towards implementation of the hardware that will execute our strategies. A retail trader will likely be executing their strategy from home during market hours. This will involved turning on their PC, connecting to the brokerage, updating their market software and then allowing the algorithm to execute automatically during the day.

Conversely, a professional quant fund with significant assets under management AUM will have a dedicated exchange-colocated server infrastructure in order to reduce latency as far as possible to execute their high speed strategies. The simplest approach to hardware deployment is simply to carry out an algorithmic strategy with a home desktop computer connected to the brokerage via a broadband or similar connection. While this approach is straightforward to get started it suffers from many drawbacks.

The desktop machine is subject to power failure, unless backed up by a UPS. In addition a home internet connection is also at the mercy of the ISP. Power loss or internet connectivity failure could occur at a crucial moment in trading, leaving the algorithmic trader with open positions that are unable to be closed. This problem also occurs with operating system mandatory restarts this has actually happened to me in a professional setting!

For the above reasons I hesitate to recommend a home desktop approach to algorithmic trading. If you do decide to pursue this approach, make sure to have both a backup computer AND a backup internet connection e. Soon, I was spending hours reading about algorithmic trading systems rule sets that determine whether you should buy or sell , custom indicators , market moods, and more.

Around this time, coincidentally, I heard that someone was trying to find a software developer to automate a simple trading system. This was back in my college days when I was learning about concurrent programming in Java threads, semaphores, and all that junk.

The client wanted algorithmic trading software built with MQL4 , a functional programming language used by the Meta Trader 4 platform for performing stock-related actions. The role of the trading platform Meta Trader 4, in this case is to provide a connection to a Forex broker. Through Meta Trader 4, you can access all this data with internal functions, accessible in various timeframes: The movement of the Current Price is called a tick.

In other words, a tick is a change in the Bid or Ask price for a currency pair. During active markets, there may be numerous ticks per second. During slow markets, there can be minutes without a tick. The tick is the heartbeat of a currency market robot. When you place an order through such a platform, you buy or sell a certain volume of a certain currency.

You also set stop-loss and take-profit limits. The stop-loss limit is the maximum amount of pips price variations that you can afford to lose before giving up on a trade. Many come built-in to Meta Trader 4. However, the indicators that my client was interested in came from a custom trading system. They wanted to trade every time two of these custom indicators intersected, and only at a certain angle. The start function is the heart of every MQL4 program since it is executed every time the market moves ergo, this function will execute once per tick.

For example, you could be operating on the H1 one hour timeframe, yet the start function would execute many thousands of times per timeframe. Once I built my algorithmic trading system, I wanted to know: In other words, you test your system using the past as a proxy for the present. MT4 comes with an acceptable tool for backtesting a Forex trading strategy nowadays, there are more professional tools that offer greater functionality. To start, you setup your timeframes and run your program under a simulation; the tool will simulate each tick knowing that for each unit it should open at certain price, close at a certain price and, reach specified highs and lows.

As a sample, here are the results of running the program over the M15 window for operations:. This particular science is known as Parameter Optimization. I did some rough testing to try and infer the significance of the external parameters on the Return Ratio and came up with something like this:. You may think as I did that you should use the Parameter A. Specifically, note the unpredictability of Parameter A: In other words, Parameter A is very likely to over-predict future results since any uncertainty, any shift at all will result in worse performance.

But indeed, the future is uncertain! And so the return of Parameter A is also uncertain. The best choice, in fact, is to rely on unpredictability. Often, a parameter with a lower maximum return but superior predictability less fluctuation will be preferable to a parameter with high return but poor predictability. In turn, you must acknowledge this unpredictability in your Forex predictions.

This does not necessarily mean we should use Parameter B, because even the lower returns of Parameter A performs better than Parameter B; this is just to show you that Optimizing Parameters can result in tests that overstate likely future results, and such thinking is not obvious.

This is a subject that fascinates me. Building your own FX simulation system is an excellent option to learn more about Forex market trading, and the possibilities are endless. The Forex world can be overwhelming at times, but I hope that this write-up has given you some points on how to start on your own Forex trading strategy. Nowadays, there is a vast pool of tools to build, test, and improve Trading System Automations: Here are a few write-ups that I recommend for programmers and enthusiastic readers:.

Forex or FX trading is buying and selling via currency pairs e. Forex brokers make money through commissions and fees. Forex traders make or lose money based on their timing: If they're able to sell high enough compared to when they bought, they can turn a profit. Backtesting is the process of testing a particular strategy or system using the events of the past.

A Practical Tale for Engineers. My First Client Around this time, coincidentally, I heard that someone was trying to find a software developer to automate a simple trading system.

MQL5 has since been released. As you might expect, it addresses some of MQL4's issues and comes with more built-in functions, which makes life easier. If you want to learn more about the basics of trading e. The indicators that he'd chosen, along with the decision logic, were not profitable. Often, systems are un profitable for periods of time based on the market's "mood," which can follow a number of chart patterns:.

Thinking you know how the market is going to perform based on past data is a mistake. Understanding the Basics What is Forex trading all about? How does Forex make money? What is backtesting a trading strategy?

What is algorithmic trading? Rogelio Nicolas Mengual, Argentina member since November 19, Rogelio is a versatile, positive, and self-motivated full-stack engineer with over twelve years of work experience in many programming languages, frameworks, and platforms.

He enjoys taking on new challenges and constantly strives to learn new skills. I have always wanted to learn about this. I studied a bit of market theory in college and learned about channel trading. I always thought that would be a good fit for algo trading since the strategy is recursive. Do you have any pointers on how to implement channel type of strategies as opposed to Moving Average strategies?

I'm sure you know this, but some old research shows that Exponential MA strategies make more and even out perform buy and hold strategies without taking into account tax advantages.

Hi Rismay, thanks for commenting, about this: The values of the indicators are referenced as a reverse zero point array [oo.. Young's book is a good starting point to understand how indicators work. Curious if you've engaged in the https: Seems like a great way to get your feet wet. Congrats Great post Rogelio! Just wanted to share my experience as well: Almost every trading book states, that most traders fails because of psychological factor, when they make exceptions from their own strategies, so as an engineer my only tought was that this is a perfect place for a software solution to avoid human inntervention to the trading system once you decide to start using it.

I have spend one entire year of my career just by programming, testing and optimizing with past data every single strategy I was able to find online and on variuos different trading books. And you know what - none of them had constant profitability. And after reading a lot of blog posts etc I came to the conclusion: We are living in a world where everyone can write his own trading robot and big trading corporations, banks etc And here is the result: Once some pattern comes true at least for some period of time it emediatly turns in to no pattern, because everybody on this game are looking for these patterns.

Once you see some pattern you place an order to buy or sell, your order pushes the market to the opposite direction you want it to go at least for a bit. But do not be naieve, if you see the pattern most probably a lot of other traders with hudge investmens sees this pattern as well so this time they are doing the same and you all lose your money all together. Think of it before you decide to become a trader with software engineering background.

Hi Simanas, Thanks for the thoughtful comment. In a previous sketch of this article I described who the really smart players in this game are, and I mentioned the guys from Jane Street among others that play the role of middle-man and arbitrageurs in the market. We The Editor, Charlie Marsh and Me decided not to include that among another reflections that considered just that you are mentioning in this comment.

All that being said, I like to believe that you can find an edge of the market if you use the correct tools and make the correct simulations using the proper variables. I haven't engaged in that community; it looks awesome to start programming and reuse the code offered there!

I enjoyed this article as it is exactly the kinds of important big milestones I ran into. The project which started for a custom formula for several separate clients became a commercial product driven by user submissions. Now users can copy or sell their trades and copy trades from indicators in Meta Trader. You will get your principal back immediately after your investment term is expired..

The Quantopian does not provide any Forex data, right?? The site only provides stock and etf. I like their forex-copy system.

You can copy the trades of successful traders and earn money even if you're newbie. And I'd like to say that their trading conditions are very suitable for me. Spreads are good, I choose 1: Simple question you might be able to answer: Any advice appreciated thanks. I have been trading with forex since and never encountered any issue. Hello You can try with penny stocks. Interesting article - so Nico, have any of the trading systems you built for clients proved to be consistently profitable?

I've toyed with developing one for a while but question whether or not FX price movement is predictable enough to make a consistent profit. Totally agree with your belief in the beauty of brain. And would like to suggest here that the use of machine is just to avoid the human limitations. The human body combination brain, body, hands cant possibly be as fast as the machine to trade in the market with a latency of under milliseconds.

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Nitrous is a high-performance Java-based trading and analytics tool specifically designed to meet the needs of Institutional clients utilizing direct-access trading strategies. The software is based on MA open-source software developed by Jim Cochrane. In my first iteration of developing a trading strategy and software to automate the trades I built a Java desktop application using Swing components which would monitor stocks throughout the day. AlgoTrader is a Java-based algorithmic trading platform that enables trading firms to rapidly develop, simulate, deploy and automate any quantitative trading strategy for any market. Designed by industry experts, it gives users maximum control of high-speed, fact-based trading for consistent, superior results.