the evolution of algorithmic trading and the role of technical … · 2018. 6. 25. · algorithmic...

The evolution of Algorithmic Trading

and the role of Technical Analysis

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The evolution of Algorithmic Trading and the role of Technical AnalysisAndrea Unger

L’evoluzione del Trading Algoritmico e il ruolo dell’Analisi Tecnica ‐ A. Unger

Are Markets Changing?

Some tests on a basket of instruments to analyse if and how the situation in the markets has been changing throughout the years

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The basket - Indexes

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The basket – Currencies & Bonds

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The basket - Metals

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The basket - Energy

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The basket – Softs & Grains

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We test a Donchian Channel Breakout first

from 1/Jan/1960 to 31/Dec/2000 and then

from 1/1/2001 on, the Channel based on

5, 20 or 50 bars.

30 USD RT Commissions included

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1960-2000 2001-2016ars Donchian Channel


Bars Donchian Channel

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1960-2000 2001-2016



ars Donchian Channel

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1960-2000 2001-2016



5 Bars Donchian Channel

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1960-2000 2001-2016




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1960-2000 2001-2016




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1960-2000 2001-2016




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More Trades but worse TradesSame average duration of trades, this means less

good moves in the winners

1960-2000 2001-2016




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More Trades but worse TradesSame average duration of trades, this means less


1960-2000 2001-2016




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Same average duration of trades, this means less


More Trades but worse Trades

1960-2000 2001-2016



Test results show how basic approaches used for years still produce profits but in a worse way, markets themselves show sometimes deep changes in their way to move

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20 Bars Donchian Chan

Cocoa, it is clearly a bad

to trade here

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– Crude Oil some Great

Winners and then

confusion

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Gold great Gains in som

phases but not always

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– Coffee «killed» by

electronic markets

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– Live cattle also sufferi

electronic «efficiency»

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– Corn also suffering

electronic «efficiency»

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SP500 hard to use

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30 Yrs Bond a good one

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L’evoluzione del Trading Algoritmico e il ruolo dell’Analisi Tecnica ‐ A. Unger 30


30 Yrs Bond Long only

curve




30 Yrs Bond Short only

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Each markets reacts in a different waySome markets make gains thanks to

particular movesSome gains are more related to the

overall trend rather than to the method

Markets Are Changing!

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Shall we change?

It is not the strongest species that survive, nor the most intelligent, but the one most responsive to change

1963 professor Megginson (sometimes wrongly attributed to C. Darwin)

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Shall we change?

Repetition makes us feel secure and variation makes us feel free.

Robert Hass

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Shall we change?

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To win a competition requires fast reaction to changes as limited time is available, performance is needed and it is needed immediately!Andrea UngerTrading World Champion (2008, 2009, 2010, 2012).


Technical Analysis?

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Hard to apply with machines, human discretion plays too important a role

Technical Analysis?


Concepts such as “Support”, “Resistance”or “Trendline” are hard to code and so are most Patterns of Technical Analysis, these remain tools to use in discretionary trading

Technical Analysis?


Some Chart Patterns can be coded and tested, not always with the expected results…

Technical Analysis?


Engulfing Ptn Outside Bar Inside BarPin Bar 1 Bar retracement

Technical Analysis?


Testing condition:Breakout of PatternStop Loss opposite extreme of PatternTake Profit = 3 x Stop Loss

Trend filters:0 – No filter1 – Close > ExpAvg20) for Long Close < ExpAvg(20) for Short

2 –ExpAvg(20) > ExpAvg(50) for Long ExpAvg(20) < ExpAvg(50) for Short3 – 1 and 2

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Technical Analysis?


Engulfing Ptn Trend Filte

Technical Analysis?


Engulfing Ptn Trend Filter

Technical Analysis?



Technical Analysis?


Engulfing Ptn Trend FilterAND ADX(5) < 35

Technical Analysis?


Pin Bar Ptn Trend Filter =AND ADX(5) < 35

Technical Analysis?


OutSide Bar Ptn Trend Fi= 3 AND ADX(5) < 35

Technical Analysis?


InSide Bar Ptn Trend FilteAND ADX(5) < 35

Technical Analysis?


Retracement Ptn Trend F= 3 AND ADX(5) < 35

Technical Analysis?


• OutSide Bars ended up to be the best Pattern in the group but generally none was excellent

• InSide Bars did not lead to an effective Strategy• Trend filters have demonstrated to be critical• ADX filter helps in targetting better entries• Engulfing Pattern is maybe the most disappointing

considering its expectations• All these and other Patterns are better traded

manually with additional Human Discretion to identify best Price Zones to trigger the entries

Technical Analysis?


Algorithmic approach and Statistical Analysis can be merged together under “quant” definition and play the most important role in modern Technical Analysis

Technical Analysis?


Machines can help in speeding up development but they ALWAYS need a human supervision in order to duly treat the results!

Technical Analysis?


Thank YOU!

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the evolution of algorithmic trading and the role of technical … · 2018. 6. 25. · algorithmic...

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