Using an automated day trader to generate income

1. Why did he decide to enter into this strategy at 10:45 am on October 15th? 2. What would the outcome of the same strategy have been if it was left running for the next month, for the past year, for the past 10 years.

I'm curious.

Questions about how the backtest was run.

1.How do you get your data? 2.you seem to have written an excel spreadsheet to run the backtest, what's going on with that? How did you design it?

For other people on HN, does anyone here use backtesting tools? What do you think of the existing software you use?

I modeled the woodiescciclub.com trading strategies, primarily because the math is simple and the patterns are well defined. However since then I've seen other parties on the web talk about how the Woodies patterns actually don't make money consistently, although I didn't corroborate this.

I actually found CL to be a fantastic language for this. I was writing up the Woodies patterns using a DSL I had created:

  (defpattern zlr "Zero Line Reject" :with-trend
    ((count 1)    (within  100  250) (trend :up :or-opposite-invert))
    ((count 1)    (within  100  200) (trend :up :or-opposite-invert))
    ((count 0 10) (within  -50   99) (trend :up :or-opposite-invert))
    ((count 1)    (within  -50   50) (trend :up :or-opposite-warn) (angle :down))
    ((count 1)    (within    0  115) (trend :up) (angle :up) (away 8)))

  (defpattern hfe "Hook From Extreme" :counter-trend
    ((count 1)    (within  200  300) (trend :up))
    ((count 1)    (within    0  199) (trend :up) (angle :down) (away 3)))

   ...etc

Another CL feature, restarts in the condition system, helped too. When the data feed broke or got corrupt, an exception thrown which could reload the data feed and restart back in the listening loop without forgetting any context was helpful.

Also just running in a Lisp image was great because I could swap functions during a live feed without stopping the program.

In the end, the programming worked great, but the trading system lost money. I had it working in backtesting over a few months and then papertrade mode for weeks, and then when I took it live, the volatility rose and it started hitting the stop all the time. I adjusted things like stops based on ATR, but I really just ran out of my little budget to play with it.

It did however teach me CL. ;-)

Modern trading platforms have built-in tools and programming languages and writing things from scratch in CL is really just an academic exercise.

I believe it's possible to do algorithmic daytrading, but quite a bit more difficult than it seems. There are way more market behavior modes than you can appreciate at first, and the keys to success lie more in counterintuitive aspects of your system like position sizing rather than intuitive aspects like entry strategy.

The best talk I heard from someone on the subject indicated that it takes years and the end result is a fairly sophisticated algorithm-switching engine, because the hard part is just to survive.

As for the attacks on technical analysis, many practitioners probably are deceiving themselves that they've found some secret sauce. However, since the market is made of 100% of the people who transact in it, the presence of technical traders means that there must be some price movements as a result of these trends. One ideal would be to find a strategy that beats other technical analysts to the punch. A lot of people use the 12/26 MACD, but maybe the 11/25 MACD would help you eat their lunch before they entered the market...

It is all very tricky and takes a lot of discipline to avoid fooling yourself and getting into real trouble. Also, people need to make sure to focus on both sides of the trade - you only book the profit once you've actually sold the position (most people seem to be much more focused on entries than exits)

If anyone is interested in this kind of software but aren't so into learning a new language (perhaps less applicable to this group), you should check out QuantRunner Software http://www.quantrunner.com. In full disclosure, I am the CEO of the company, but we really focus on making this kind of back testing analysis easier for people to do without programming experience. We also have some novel tools for helping people actually improve their strategies, rather than simply iterate tests. If I had the true answers on the best strategies, I probably wouldn't run a software company. All we hope for is to make it easy enough for people to do their homework without having to worry about coding errors as well as poor strategies.