4 Steps to Create A Systematic Trading Strategy
A Thread Covering basics of Rules Based Trading ๐งต
[1/17]
A Thread Covering basics of Rules Based Trading ๐งต
[1/17]
Traders gather past historical data and try to identify profitable trading opportunities, backtest their logic and develop profitableย trading strategiesย
[2/17]
[2/17]
What matters is only data and what the data is trying to tell you.
In rules based trading you donโt take trades based on what you think is going to happen , rather you follow the rules that you have created
[3/17]
In rules based trading you donโt take trades based on what you think is going to happen , rather you follow the rules that you have created
[3/17]
A Systematic Trading consists of four major components:
๐ธ ๐ฆ๐๐ฟ๐ฎ๐๐ฒ๐ด๐ ๐๐ฑ๐ฒ๐ป๐๐ถ๐ณ๐ถ๐ฐ๐ฎ๐๐ถ๐ผ๐ปย - Finding a strategy and exploiting an edge.
๐ธ ๐ฆ๐๐ฟ๐ฎ๐๐ฒ๐ด๐ ๐๐ฎ๐ฐ๐ธ๐๐ฒ๐๐๐ถ๐ป๐ดย - Obtaining data and analysing strategy performance across years .
[4/17]
๐ธ ๐ฆ๐๐ฟ๐ฎ๐๐ฒ๐ด๐ ๐๐ฑ๐ฒ๐ป๐๐ถ๐ณ๐ถ๐ฐ๐ฎ๐๐ถ๐ผ๐ปย - Finding a strategy and exploiting an edge.
๐ธ ๐ฆ๐๐ฟ๐ฎ๐๐ฒ๐ด๐ ๐๐ฎ๐ฐ๐ธ๐๐ฒ๐๐๐ถ๐ป๐ดย - Obtaining data and analysing strategy performance across years .
[4/17]
๐ธ ๐๐
๐ฒ๐ฐ๐๐๐ถ๐ผ๐ป ๐ฆ๐๐๐๐ฒ๐บย - Linking to a brokerage, automating the trading system and minimising transaction costs.
๐ธ ๐ฅ๐ถ๐๐ธ ๐ ๐ฎ๐ป๐ฎ๐ด๐ฒ๐บ๐ฒ๐ป๐ย - Optimal capital allocation , strategy diversification and design .
[5/17]
๐ธ ๐ฅ๐ถ๐๐ธ ๐ ๐ฎ๐ป๐ฎ๐ด๐ฒ๐บ๐ฒ๐ป๐ย - Optimal capital allocation , strategy diversification and design .
[5/17]
What are the Pros and Cons of Systematic Trading
[6/17]
[6/17]
![What are the Pros and Cons of Systematic Trading
[6/17] https://t.co/fr3Wc9OZCq](https://pbs.twimg.com/media/FXtSdtNVEAIM-yD.png)
๐ญ. ๐ฆ๐๐ฟ๐ฎ๐๐ฒ๐ด๐ ๐๐ฑ๐ฒ๐ป๐๐ถ๐ณ๐ถ๐ฐ๐ฎ๐๐ถ๐ผ๐ป
All quantitative trading processes begin with an initial period of research. This research process encompasses finding a strategy, seeing whether the strategy fits into a portfolio of other strategies you may be running.
[7/17]
All quantitative trading processes begin with an initial period of research. This research process encompasses finding a strategy, seeing whether the strategy fits into a portfolio of other strategies you may be running.
[7/17]
๐ฎ. ๐ฆ๐๐ฟ๐ฎ๐๐ฒ๐ด๐ ๐๐ฎ๐ฐ๐ธ๐๐ฒ๐๐๐ถ๐ป๐ด
The goal ofย ๐ฃ๐ข๐ค๐ฌ๐ต๐ฆ๐ด๐ต๐ช๐ฏ๐จย is to provide evidence that the strategy is profitable when applied to historical data.
This sets the expectation of how the strategy will perform in the "๐ฟ๐ฒ๐ฎ๐น ๐๐ผ๐ฟ๐น๐ฑ".
[8/17]
The goal ofย ๐ฃ๐ข๐ค๐ฌ๐ต๐ฆ๐ด๐ต๐ช๐ฏ๐จย is to provide evidence that the strategy is profitable when applied to historical data.
This sets the expectation of how the strategy will perform in the "๐ฟ๐ฒ๐ฎ๐น ๐๐ผ๐ฟ๐น๐ฑ".
[8/17]
Where can you backtest Strategies ?
You can use ๐๐ต๐ฐ๐ค๐ฌ๐ฎ๐ฐ๐ค๐ฌ , ๐๐ญ๐จ๐ฐ๐ต๐ฆ๐ด๐ต , ๐๐ณ๐ข๐ฅ๐ฆ๐ต๐ณ๐ฐ๐ฏ for Backtestingย Index Option Strategies and ๐๐ฎ๐ช๐ฃ๐ณ๐ฐ๐ฌ๐ฆ๐ณ, ๐๐บ๐ต๐ฉ๐ฐ๐ฏ, ๐๐ณ๐ข๐ฅ๐ช๐ฏ๐จ๐ท๐ช๐ฆ๐ธย to custom code and backtest all other strategies
[9/17]
You can use ๐๐ต๐ฐ๐ค๐ฌ๐ฎ๐ฐ๐ค๐ฌ , ๐๐ญ๐จ๐ฐ๐ต๐ฆ๐ด๐ต , ๐๐ณ๐ข๐ฅ๐ฆ๐ต๐ณ๐ฐ๐ฏ for Backtestingย Index Option Strategies and ๐๐ฎ๐ช๐ฃ๐ณ๐ฐ๐ฌ๐ฆ๐ณ, ๐๐บ๐ต๐ฉ๐ฐ๐ฏ, ๐๐ณ๐ข๐ฅ๐ช๐ฏ๐จ๐ท๐ช๐ฆ๐ธย to custom code and backtest all other strategies
[9/17]
๐๐
๐ฒ๐ฐ๐๐๐ถ๐ผ๐ป ๐ฆ๐๐๐๐ฒ๐บ๐
Anย ๐ฆ๐น๐ฆ๐ค๐ถ๐ต๐ช๐ฐ๐ฏ ๐ด๐บ๐ด๐ต๐ฆ๐ฎย is the means by which the list of trades generated by the strategy are sent and executed by the broker
[10/17]
Anย ๐ฆ๐น๐ฆ๐ค๐ถ๐ต๐ช๐ฐ๐ฏ ๐ด๐บ๐ด๐ต๐ฆ๐ฎย is the means by which the list of trades generated by the strategy are sent and executed by the broker
[10/17]
The key considerations when creating an execution system are
ย A. ๐๐ป๐๐ฒ๐ฟ๐ณ๐ฎ๐ฐ๐ฒ ๐๐ผ ๐๐ต๐ฒ ๐ฏ๐ฟ๐ผ๐ธ๐ฒ๐ฟ๐ฎ๐ด๐ฒ
B. Minimisation ofย ๐๐ฟ๐ฎ๐ป๐๐ฎ๐ฐ๐๐ถ๐ผ๐ป ๐ฐ๐ผ๐๐๐ย
(including commission, slippage and spread)
[11/17]
ย A. ๐๐ป๐๐ฒ๐ฟ๐ณ๐ฎ๐ฐ๐ฒ ๐๐ผ ๐๐ต๐ฒ ๐ฏ๐ฟ๐ผ๐ธ๐ฒ๐ฟ๐ฎ๐ด๐ฒ
B. Minimisation ofย ๐๐ฟ๐ฎ๐ป๐๐ฎ๐ฐ๐๐ถ๐ผ๐ป ๐ฐ๐ผ๐๐๐ย
(including commission, slippage and spread)
[11/17]
C.ย ๐๐ถ๐๐ฒ๐ฟ๐ด๐ฒ๐ป๐ฐ๐ฒ ๐ผ๐ณ ๐ฝ๐ฒ๐ฟ๐ณ๐ผ๐ฟ๐บ๐ฎ๐ป๐ฐ๐ฒย of the live system from backtested performance.
Example : You can use ๐๐ถ๐ข๐ฏ๐ต๐ช๐ฑ๐ญ๐บ, ๐๐ณ๐ข๐ฅ๐ฆ๐ต๐ณ๐ฐ๐ฏ , ๐๐ญ๐จ๐ฐ๐ฎ๐ฐ๐ซ๐ฐ , or directly use Python to deploy our strategies
[12/17]
Example : You can use ๐๐ถ๐ข๐ฏ๐ต๐ช๐ฑ๐ญ๐บ, ๐๐ณ๐ข๐ฅ๐ฆ๐ต๐ณ๐ฐ๐ฏ , ๐๐ญ๐จ๐ฐ๐ฎ๐ฐ๐ซ๐ฐ , or directly use Python to deploy our strategies
[12/17]
Came across this start-up called Investmint @investmintclub .They seem to have some quantitative strategies for retail users. I joined their beta group where I found two intraday strategies, seems they are on to something interesting.
[13/17]
[13/17]
๐ฐ. ๐ฅ๐ถ๐๐ธ ๐ ๐ฎ๐ป๐ฎ๐ด๐ฒ๐บ๐ฒ๐ป๐:
Risk management encompasses ๐ฐ๐ฑ๐ต๐ช๐ฎ๐ข๐ญ ๐ค๐ข๐ฑ๐ช๐ต๐ข๐ญ ๐ข๐ญ๐ญ๐ฐ๐ค๐ข๐ต๐ช๐ฐ๐ฏ , strategy diversification and inbuilt limits for losses within a strategy
[14/17]
Risk management encompasses ๐ฐ๐ฑ๐ต๐ช๐ฎ๐ข๐ญ ๐ค๐ข๐ฑ๐ช๐ต๐ข๐ญ ๐ข๐ญ๐ญ๐ฐ๐ค๐ข๐ต๐ช๐ฐ๐ฏ , strategy diversification and inbuilt limits for losses within a strategy
[14/17]
This is the means by which capital is allocated to a set of different strategies and to the trades within those strategies
Example : 2 Lakh per lot for Option Selling , keeping buffer cash for drawdown and MTM Losses
[15/17]
Example : 2 Lakh per lot for Option Selling , keeping buffer cash for drawdown and MTM Losses
[15/17]
In Summary
How to ๐ฏ๐๐ถ๐น๐ฑ/๐ฏ๐ฎ๐ฐ๐ธ๐๐ฒ๐๐ a strategy ?
๐ธ Idea/Hypothesis
๐ธ Specify entry,exit, SL
๐ธ Position Sizing and Risk Mgt.
๐ธ Trade log and Backtest Report
๐ธ Test in diff. market conditions
๐ธ Optimise the strategy
๐ธ Track Real Time performance
๐ธ Deploy
[16/17]
How to ๐ฏ๐๐ถ๐น๐ฑ/๐ฏ๐ฎ๐ฐ๐ธ๐๐ฒ๐๐ a strategy ?
๐ธ Idea/Hypothesis
๐ธ Specify entry,exit, SL
๐ธ Position Sizing and Risk Mgt.
๐ธ Trade log and Backtest Report
๐ธ Test in diff. market conditions
๐ธ Optimise the strategy
๐ธ Track Real Time performance
๐ธ Deploy
[16/17]
If you like this thread please retweet the first tweet and follow me for more!
Loading suggestions...