This 7 part series is intended to provide traders with an overview of what's possible by incorporating bots into their trading.

I hope that you find this kinda shop talk as interesting as I do.

Carl















The following statement is furnished pursuant to Commodity Futures Trading Commission (“CFTC”) Regulation 1.55(c).This brief statement does not disclose all of the risks and other significant aspects of trading in futures, forex and options. In light of the risks, you should undertake such transactions only if you understand the nature of the contracts (and contractual relationships) into which you are entering and the extent of your exposure to risk. Trading in futures, forex and options is not suitable for many members of the public. You should carefully consider whether trading is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances.

The risk of loss in trading commodity futures contracts and foreign currency can be substantial. You should, therefore, carefully consider whether such trading is suitable for you in light of your circumstances and financial resources. You should be aware of the following points:

1.      You may sustain a total loss of the funds that you deposit with your broker to establish or maintain a position in the commodity futures market or foreign exchange market, and you may incur losses beyond these amounts. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice, in order to maintain your position. If you do not provide the required funds within the time required by your broker, your position may be liquidated at a loss, and you will be liable for any resulting deficit in your account.

2.      The funds you deposit with a futures commission merchant for trading futures and forex positions are not protected by insurance in the event of the bankruptcy or insolvency of the futures commission merchant, or in the event your funds are misappropriated.

3.      The funds you deposit with a futures commission merchant for trading futures or forex positions are not protected by the Securities Investor Protection Corporation even if the futures commission merchant is registered with the Securities and Exchange Commission as a broker or dealer.

4.      The funds you deposit with a futures commission merchant are generally not guaranteed or insured by a derivatives clearing organization in the event of the bankruptcy or insolvency of the futures commission merchant, or if the futures commission merchant is otherwise unable to refund your funds. Certain derivatives clearing organizations, however, may have programs that provide limited insurance to customers. You should inquire of your futures commission merchant whether your funds will be insured by a derivatives clearing organization and you should understand the benefits and limitations of such insurance programs.

5.      The funds you deposit with a futures commission merchant are not held by the futures commission merchant in a separate account for your individual benefit. Futures commission merchants commingle the funds received from customers in one or more accounts and you may be exposed to losses incurred by other customers if the futures commission merchant does not have sufficient capital to cover such other customers’ trading losses.

6.      The funds you deposit with a futures commission merchant may be invested by the futures commission merchant in certain types of financial instruments that have been approved by the Commission for the purpose of such investments. Permitted investments are listed in Commission Regulation 1.25 and include: U.S. government securities; municipal securities; money market mutual funds; and certain corporate notes and bonds. The futures commission merchant may retain the interest and other earnings realized from its investment of customer funds. You should be familiar with the types of financial instruments that a futures commission merchant may invest customer funds in.

7.      Futures commission merchants are permitted to deposit customer funds with affiliated entities, such as affiliated banks, securities brokers or dealers, or foreign brokers. You should inquire as to whether your futures commission merchant deposits funds with affiliates and assess whether such deposits by the futures commission merchant with its affiliates increases the risks to your funds.

8.      You should consult your futures commission merchant concerning the nature of the protections available to safeguard funds or property deposited for your account.

9.      Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market reaches a daily price fluctuation limit (“limit move”).

10.  All futures, forex and options positions involve risk, and a “spread” position may not be less risky than an outright “long” or “short” position.

11.  The high degree of leverage (gearing) that is often obtainable in futures and forex trading because of the small margin requirements can work against you as well as for you. Leverage (gearing) can lead to large losses as well as gains.

12.  In addition to the risks noted in the paragraphs enumerated above, you should be familiar with the futures commission merchant you select to entrust your funds for trading futures positions. As of July 12, 2014, the Commodity Futures Trading Commission requires each futures commission merchant to make publicly available on its Web site firm specific disclosures and financial information to assist you with your assessment and selection of a futures commission merchant. ALL OF THE POINTS NOTED ABOVE APPLY TO ALL FUTURES AND FOREX TRADING WHETHER FOREIGN OR DOMESTIC. IN ADDITION, IF YOU ARE CONTEMPLATING TRADING FOREIGN FUTURES OR OPTIONS CONTRACTS, YOU SHOULD BE AWARE OF THE FOLLOWING ADDITIONAL RISKS:

13.  Foreign futures transactions involve executing and clearing trades on a foreign exchange. This is the case even if the foreign exchange is formally “linked” to a domestic exchange, whereby a trade executed on one exchange liquidates or establishes a position on the other exchange. No domestic organization regulates the activities of a foreign exchange, including the execution, delivery, and clearing of transactions on such an exchange, and no domestic regulator has the power to compel enforcement of the rules of the foreign exchange or the laws of the foreign country. Moreover, such laws or regulations will vary depending on the foreign country in which the transaction occurs. For these reasons, customers who trade on foreign exchanges may not be afforded certain of the protections which apply to domestic transactions, including the right to use domestic alternative dispute resolution procedures. In particular, funds received from customers to margin foreign futures transactions may not be provided the same protections as funds received to margin futures transactions on domestic exchanges. Before you trade, you should familiarize yourself with the foreign rules which will apply to your particular transaction.

14.  Finally, you should be aware that the price of any foreign futures or option contract and, therefore, the potential profit and loss resulting therefrom, may be affected by any fluctuation in the foreign exchange rate between the time the order is placed and the foreign futures contract is liquidated or the foreign option contract is liquidated or exercised.

THIS BRIEF STATEMENT CANNOT, OF COURSE, DISCLOSE ALL THE RISKS AND OTHER ASPECTS OF THE COMMODITY AND FOREIGN CURRENCY MARKETS.

Hybrid Trading - How the Human-Computer Symbiosis Enlarges Your Intellect While Enabling the Automation of Your Execution Responsibilities

It is the best of times, it is the worst of times.


With computer based algorithms generating the bulk of the trades in today's electronic markets, the human trading patterns that technical analysis uncovers, has withered away.

Markets are now more apt to meander endlessly and then, suddenly, tick consistently up, or down, the price ladder, without a pause.

The behavioral patterns of today's markets no longer represent the ebb and flow of human traders fighting it out in the pits.  

The behavioral patterns of today's markets are generated by trading algorithms that ingest gobs of data and they respond to this data within a millisecond - or less.

The markets march up the price ladder are caused by algorithms responding to other algorithms, which in turn trigger other algorithms.
 

 Goldman Sach’s algorithms do not pause, flinch, or take a break.
 

The algorithms see the market moving up, they assess the available inventory of futures contracts or equity shares to deduce the level of imbalance in the supply and demand curve, and execute, execute, execute ... accordingly.

We as traders, do not have access to the magnificent algorithms that Goldman Sachs or Citadel or Renaissance Technologies possess.
 

Unfair environment or unparalleled opportunity?  Cry foul or roll up your sleeves with glee?


It is our belief that we, as traders, must adapt and change in order to thrive in today’s markets.

The approach that has evolved to manage our trading activities in today’s electronic markets, is an approach that blends both man and machine, trader and computer, cerebral pattern recognition skills with automated execution.

We have dubbed this method, Hybrid Trading.

We do not aim to go head to head with Goldman Sachs or any other HFT shop.

Instead, we lever the capabilities of the human brain to organize and deploy algorithmic trading bots of our own.

These bots can be tuned for any market condition and deployed with the click of mouse or a keystroke.

Walter Isaacson, in his book review of Clive Thompson’s book, ‘Smarter Than You Think’ does a tremendous job of articulating the potential of a hybrid trading approach:

  

When the world chess champion Garry Kasparov was beaten in 1997 by Deep Blue, an I.B.M. supercomputer, it was considered to be a major milestone in the march toward artificial intelligence. It probably shouldn’t have been. As complex as chess is, it’s easy to see that its rules can be translated into algorithms so that computers, when they eventually got enough processing power, could crunch through billions of possible moves and past games. Deep Blue’s calculations were a fundamentally different process, most people would say, from the “real” thinking and intuition a human player would use.
 

  

Clive Thompson, a Brooklyn-based technology journalist, uses this tale to open “Smarter Than You Think,” his judicious and insightful book on human and machine intelligence. But he takes it to a more interesting level. The year after his defeat by Deep Blue, Kasparov set out to see what would happen if he paired a machine and a human chess player in a collaboration. Like a centaur, the hybrid would have the strength of each of its components: the processing power of a large logic circuit and the intuition of a human brain’s wetware. The result: human-machine teams, even when they didn’t include the best grandmasters or most powerful computers, consistently beat teams composed solely of human grandmasters or superfast machines.
 
Thompson’s point is that “artificial intelligence” — defined as machines that can think on their own just like or better than humans — is not yet (and may never be) as powerful as “intelligence amplification,” the symbiotic smarts that occur when human cognition is augmented by a close interaction with computers. When he played in collaboration with a computer, Kasparov said, it freed him to focus on the “creative texture” of the game. In the future, Thompson writes, we should not fear being beaten in chess by Deep Blue or in “Jeopardy!” by Watson. Instead, humans will find themselves working in partnership with the progeny of these supercomputers to diagnose diseases, solve crimes, write poetry and become (as the clever double meaning of the book’s title puts it) smarter than we think.


If this approach works for chess, and healthcare, via IBM’s Watson, why shouldn’t we aggressively apply it to trading?

  

Overcoming the Achilles Heel of Automated Trading

 
For quite some time traders have been able to buy or lease fully automated trading strategies.  

How wonderful to be able to just buy a strategy, turn it on, let it run, and then head to the golf course, while your trading account accumulates algorithmically derived profits.

Except that is not the reality of fully automated trading strategies.

The reality of fully automated trading strategies is that they work well under some market conditions and degrade when the preferred market conditions dissipate.

For instance, a fully automated mean reversion trading strategy may work well in a sideways market, but once the market takes off, the reversion strategy will suffer a significant drawdown as it fights the prevailing trend.

The flip side of this is a fully automated trend strategy.  This strategy may print money while a market is zooming up, but it will likely give it all, or even more, back, when the market churns.

Hybrid Trading overcomes this issue of matching an automated strategy with current market conditions by allowing a trader to deploy one or more bots that are tuned for the current market conditions.

If the market is meandering in small range, a Hybrid Trader can elect to deploy a bot that not only seeks out the coordinates where there price is likely to revert to the mean, but the bot will also only trigger an entry at these coordinates if, and when, the order book gets flushed out with enough ferocity to kick-start the mean reversion process.

Hence, a trader can instruct a bot to pass on an entry at a mean reversion location unless a simultaneous order flow event also occurs.

This ability for bots to require any combination of price action, market structure, and order flow rules in order to trade is a not only powerful combination, it can be executed effortlessly by bots with a microsecond (1/1,000,000,000) precision.

If these conditions are met, the bot will engage in a trade.  If not, the bot will wait until it is instructed to stand-down.

Sceeto - Automating Your Pattern Recognition & Strategy Skills

Sceeto is a suite of re-configurable automated trading bots that follow whatever strategy that they are instructed the bots to execute.

Sceeto ingests order flow, market structure, technical analysis, and price action, and will pounce at the appropriate millisecond to execute the Hybrid Trader's strategy.

There is no programming necessary with Sceeto.  

Sceeto does not get fatigued, doesn't take coffee breaks, nor get distracted by their smartphone.

Thus, the job of a Hybrid Trader is not to wait and click and wait and click...but rather to think and deploy.

  

Sceeto can be configured for any trading style

  

  • Support & Resistance Levels 
  • Buying & Selling Climaxes
  • Trend Traders
  • Scalping
  • Mean Reversion
  • Head & Shoulders Patterns
  • Elliott Wave
  • Candlestick Patterns
  • Range Expansion
  • Breakouts      

 

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I trade both from a local machine and a server co-located at the CME.

My local machine is a PC from FelinePC.

I use this PC for software development, testing, and for my discretionary trading (my algorithmically derived trades are managed via a co-located server at the CME).

I have been actively trading for 18 years and have been through a tremendous amount of computers, and hardware vendors, and have never experienced the service, value, and knowledge that Mike from FelinePC provides.

If you are looking for a trading computer, I highly recommend FelinePC.

Carl Weiss
Chief Algorithmic Architect
Algo Futures