Last Week of the Year : The Trading Systems Developed in 2010, Tips and Insights About System Design

As I mentioned on yesterday’s post, 2010 was a very important year for me regarding my evolution towards a much more professional trading mindset. One of the things that contributed the most to this was the system development process which happened this year along with all the different consequences it had. On today’s post I want to talk to you about some of the things I have learned through this year about system development and why they were so important for me regarding my evolution towards becoming a much more polished and professional algorithmic forex trader. Within the next few paragraphs you will learn about how system development was tackled, what was avoided and how this lead to the creation of many successful systems within the Asirikuy community.

Definitely one of my clear goals for the year 2010 was to develop at the very least 10 different automated trading strategies to use within the Asirikuy community. To tell you the truth, when I began this process in January it seemed like a very large obstacle since system development was taking me almost a month of hard work and analysis for every single system I wanted to develop. The reason why it took me so long to develop strategies was mainly because my development process requires a very in-depth analysis and understanding of the trading tactic being developed going through every single trade within a 10 year backtest after every significant logic addition/modification to better understand the tactic used and the consequences changes had on long term statistical characteristics.

During the first half of the year this development process first led to Kutichiy and then to Teyacanani, two trading tactics which where developed based on an extensive analysis and understanding of the EUR/USD which – in the case of Teyacanani – was extrapolated to other currency pairs with good success. Perhaps one of the most important lesson I drew from the development of these systems was that it is absolutely vital to know your system in a trade-by-trade basis and to understand the possible effect that some modification may have on its long term statistical characteristics. For example through 2010 many people suggested the use of “trailing stops” or similar tactics for these strategies without realizing that the long term statistical characteristics are damaged by attempting to “minimize giving back” in this way. Through my understanding of the trading of these strategies I was able to discard many options without having to actually implement them something which left me with a very deep knowledge about the strategies and the necessary ability to improve them further in the future if this becomes necessary.

After these two systems Asirikuy grew even bigger with the implementation of Ayotl, then Quimichi, Sapaq and Atinalla FE. Perhaps my biggest achievement with this second “system set” was my improvement as a programmer in general. I have to recognize that the first versions of Asirikuy systems (the ones released in 2009 and early 2010) where quite primitive in their coding nature without too much attention to technical detail and a general lack of adequate error handling practices. After the development of Teyacanani I realized that it was very important to have a professional coding framework in which to develop our systems, something that prompted me to recode all the systems into a single framework which was developed with the invaluable collaboration of a great programmer at Asirikuy.

Definitely this year taught me that having adequate programming is not only extremely beneficial from a functional perspective but it also allows communication between users about the systems to be much easier and debugging and updating becomes almost trivial. If you are developing trading systems then developing a professional framework in which to “house” your ideas is going to be an important part of your job towards trading success.

Another great achievement which happened during the last 6 months of the year relates to my understanding of other currency pairs. I have to confess that beginning this year my knowledge was practically EUR/USD centered with a very little understanding of how other pairs function. After developing Atipaq – which tackles many different types of breakout inefficiencies – it became clear to me that pairs are different but nonetheless “bundled” in what appear to be trading symbol groups with different general characteristics. The later development of Quimichi and Sapaq further explored this idea, coming up with 11 year backtest successful systems which tackle “group” inefficiencies exploiting what certain groups of instruments have in common.

Certainly another great achievement in system development was related to the systematic evaluation of entry criteria and the introduction of the mathematical expectancy analysis of entries (also known as edge ratio analysis) during the second quarter of the year. With the development of the first Mathematical Expectancy Evaluation Tool within Asirikuy there was finally a systematic way to evaluate the potential of entries, a way to determine rational SL and TP levels for a system through a very rational approach. Using this tool many Asirikuy members where able to develop their own systems, contributing at least 5 to the Asirikuy forum for further development within the community. Although none of these systems has reached status as an “official Asirikuy system” it shows that adequate analysis and development are in fact possible within a community environment when an evidence-based approach is encountered.

My advice to people interested in system development – from what I learned this year -is therefore quite simple. Develop systems using a systematic approach in which reliable evaluation and sound trading tactics should play a vital role. Do not neglect the importance of accurate simulations and analysis since failure to do so – trading systems with false expectations – is only bound to bring failure. Always build your systems based on analysis and understanding and always be aware of their faults and the necessary procedures to simulate their results accurately. Use formal statistical criteria and never build a system based on an entry for which you haven’t determined a long term statistical edge.

As you see, 2010 has been a year filled with learning about system development, something which I seek to continue to develop in 2011. However 2011 might also be a year filled with much more advanced programming tactics with the release of my genetic framework coming up to Asirikuy within the next few weeks. If you would like to learn more about automated trading and how you too can build your own systems based on sound trading tactics through an evidence-based approach please consider joining, a website filled with educational videos, trading systems, development and a sound, honest and transparent approach to automated trading in general . I hope you enjoyed this crossword ! :o)

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