Trading System: Today, we are writing you to share a bit more information regarding the AlgoTrades Quantitative trading system and why we have seen little trading activity recently. Additionally, this message should, we hope, help to explain why we may continue to see little trading activity for a while.
As you are probably well aware, a quantitative analysis model is designed to measure and quantify trading opportunities by executing structured trading systems with a series of variables, or quantitative measures by which the trading system will attempt to trade with if it determines the opportunities are favorable and stop trading when it determines the opportunities are not. This method of analysis, which I call “Adaptive Learning”, is a means of determining when opportunities are present and when the trading system can identify this and attempt to profit from market movement.
Recently, the AlgoTrades trading system has attempted to take advantage of some rotation in the markets that failed to generate profits. With the exception of a few profitable trades over the past 7+ trading days, almost all of the trading resulted in some form of loss, which is unfortunate for all of us. In order to help you understand why this is happening, without going into extensive detail, I will try to convey a message that is clear and understandable.
In the chart example chart attached, we show you a bit of the inner workings of the AlgoTrades trading system’s internal features for our long term D30 swing trading strategy. In the example, we wanted to show you how and why the system has been taking trades through a historically volatile period of time and why it has recently shut itself off.
This example shows you one of our Volatility Step Indicators. Without going into detail, the Step values are a means of measuring historical volatility using two different time frames. Combined, these values help the trading systems determine when opportunities exist in the markets.
As you can see, the Step values were clearly indicating Expansion in volatility exploded near the beginning of September 2015. Reaching extreme levels which we rarely encounter. Volatility can be great as price movement increased larger profits can be generated but so can the losses.
Trading System Indicator
Trading futures with the massive amount of leverage they carry already large daily price swings during highly volatile times become extremely challenging. Daily price swings are large enough to shakeout most traders stops several times a day and the large daily price gaps at the opening bell also cause daily price gyrations which can inversely affect trending analysis and cause poor trade timing.
Because of the leverage futures contracts provide we really don’t need nor want any more leverage which is what higher volatility levels bring. Also high volatility bring much more RANDOM price action and price gaps. We just want low-normal volatility levels with slow and steady trades trading generating profits.
I don’t expect you to understand the logic behind the many thousands of lines of computer code, but I do expect you to try to understand some simple logic….
• When trending is present with moderate volatility (in expansion or contraction) the AlgoTrades trading system is capable of generating profits from most common price rotations/trends.
• When trending or contraction is present with large volatility (in expansion or contraction), the AlgoTrades trading system is far less likely to generate profitable trading results simply because the extended volatility presents excessive risk factoring.
Simply put, when risk factors exceed opportunities for profits and volatility is at (or near) the highest levels since October 2008 (in the last 8 years), the market is going through a violent corrective/rebalancing phase. Unless clear opportunities exist within the quantitative analysis modeling systems, the AlgoTrades systems will attempt to avoid this violent price action and wait for better opportunities.
I hope this helps to understand the amount of work and effort we have put into the inner workings of our trading systems. Together, the head programmer and myself, make a fantastic team where we can quickly and professionally develop all types of quantitative measures for these trading systems. We believe we have the best trading solution available anywhere on the planet. The unfortunate part of all of this is the September 1st starting point (right at Trending Expansion). This unfortunate market event was beyond our control and all we can do is “live to trade another day”. Which is exactly what the system is currently doing… waiting for better opportunities.
Thank you for taking the time to read my message and trying to understand what is going on within the trading system’s logical analysis modeling. It is not every day that I will be sharing some of these modeling secrets with our members, but I wanted to at least share some visual examples so you can see more clearly what has been happening and why the system will not trade extreme volatility.
I believe our systems will become highly adaptive and profitable in the months and years ahead. They will replace the need to for manual trading in hopes to generate oversized gains, while providing an automatic stream of income. Success does not happen in a straight line, and what we have experienced thus far in Sept has provided incredible insight for further improvement to make AlgoTrades a top performer in the financial industry year after year.