Quantitative Trading Journal

I am a long time lurker of forexfactory.com but finally took the plunge to create an account and take part. There is not a lot of quantitative talk on the message boards, more centered around chart analysis so never felt I would be any help.

I consider myself a Quantitative Trader and have been doing that style of trading for about 7 years. (Prior to that I was chart based and did that off and on for about 11 years)
A lot of people feel that Quantitative analysis involves computer programming, sophisticated back-testing software, complicated formulas, etc. but in reality, it can be done with Microsoft Excel and historical data. Those two things and a knowledge of Excel can help anyone test theories/ideas and see how those theories have held up for particular periods of time.

What is Quantitative trading according to investopedia.com
Quantitative trading consists of trading strategies based on quantitative analysis, which rely on mathematical computations and number crunching to identify trading opportunities.

I do not want to make too long of a first post but do want to cover a few goals I have for my journal.
#1 Offer up some alternative ways to trade that I feel are more clear and concise
#2 Share some alternative portfolio/trading analysis above what is shown in the forexfactory trade report analysis
#3 Share thoughts and ideas that got me to the point I am in my trading today (basically what I have discovered over the last 7 years)
#4 Show how easy it is to utilize excel even for those who have not even opened up the application on their computer
#5 Showing how keeping it simple is most of the time the best route. Too complicated of a system in the Quantitative world for the individual is a recipe for disaster in my opinion. The extremely complicated methods of the big Quant firms, like Renaissance Technologies, are being developed and maintained by the best of the best PhDs from MIT, Princeton, etc. Know your limitations.


What you will not get from me
#1 Great Excel skills - I keep my excel sheets simple and idiot proof. The moments I tried to get too complicated with my formulas were the moments I screwed up my trading
#2 Programming - Can't do it. Tried to learn it. Wasted two weeks of my life when I could have dedicated it to analyzing Excel sheets.
#3 Great Statistical skills. The threads here that I have been drawn to in the past have all been statistical driven. I use statistics but my level of knowledge is so much lower than some of the very smart folks here who use stats.

Hope everyone has a great trading day

I wanted to share real quick my favorite chart that helps me sleep at night. It has to do with losses. Losses over a day/week/month are to be expected. Everyone has losses but not all losing streaks are created equal. Too many traders adjust their techniques/system/method because of losing streaks. You need to know when your losing streak should be expected and part of the process and which losing streaks are telling you that your system sucks. Tracking your gains and losses is important so you can ask yourself two questions "Has this kind of streak happened to me before?" "Is this streak telling me something different than the previous losing streaks?"

First screenshot is my 36 hour rolling PIP gain/loss. So basically this lets me know if my -200 or my -310 or my -280 or -240 is out of the ordinary or should I have expected it.

The second screenshot is the 72 hour rolling PIP gain/loss. If I dropped over 400 PIPs in the next 72 hours, would that be a game changer for me? No. It has happened to me in the past and it will happen to me in the future. Remember the old saying with regards to trading. "You have not had your worst day yet"

I pick 12 hour time frames because that is when I do my trades and adjustments. I do them at 5:00 AM EST and between 4:30PM-5:00PM EST

http://www.futuresmag.com/2015/03/16...-curve-trading

I am going to cover in this journal entry the reasons I believe it is important to have strict rules for trading and also I'm going to cover trading your equity curve. The link is to a Futures Magazine article about trading your equity curve if you are unfamiliar with it.

I believe one of the big improvements to my trading was when I put together a list of rules that were so strict that even if I gave the rules to someone and we went our separate ways for a year, when we got back together 52 weeks later, we would have went long the same currency pairs and went short the same currency pairs at the exact same moments through the entire 52 weeks. This is the benefit I get out of Quantitative trading, but the benefit isn't quite what you would expect.

During the first 4 years of my Quantitative trading journey I was hell bent on finding the secret to what tipped me off to a sharp rise or a sharp fall in a currency pair. I was mildly successful but was not "life changing" successful. Then I had a epiphany.
(Side thought -I think about this a lot-: The great thing that I love about trading is that thoughts/ideas/epiphany's are had by most every trader and I always wonder when I have one, how many thousand's of other traders before me had the exact same one but separated by years and decades. Even though there could have been articles written on the very subject that I did not happen upon, that moment I discovered it on my own was a thrill and I'm sure for every other trader it was as well. It is one of those moments you pull the car over and start writing down notes)

Back to my epiphany...Anyway, I thought of all of those ideas that I had tested before and discarded because they didn't move up consistently or down consistently and what if there was one I discarded that just churned over and over and never went anywhere.

So I went back to all of my notes and spreadsheets I had saved over the years (I do not throw anything notes related or trading tests related away) and looked for the method that went absolutely nowhere.

Now comes in the method of trading your equity curve. The great thing about FF.com is the trade report and trade graph that they offer up for both demo and live accounts. Now if your trading is very random and all over the place it might not help but you can choose different time frames just in case you were consistent for a week or two and want to evaluate those time frames.

The article attached covers a few thoughts on trading your equity curve and is very basic so if you know all about it, you will not read anything life changing. A few thoughts I have about it that might help guide are...
#1 Come up with rules and create demo account #1 and make that Model #1. Get to know Model #1 like the back of your hand. You should know everything about it. Know the stats, know the trends, etc.
#2 Come up with rules on trading Model #1 You might trade against it, you might trade with it. You might just step aside

I know with my Model #1, it only moves so far in a certain period of time. It bounces back and forth and churns. I set it up that way. I trade against it on exhaustion and I trade with it on under performance.

Hope this helps and gets you thinking of the importance of trading with rules and maybe some ideas on trading your equity curve.

(Watchouts on trading your equity curve. Be careful when evaluating your drops in Model #1. It could be because you had extreme slippage or trading fees or huge spreads.)

As I work on analyzing how my Model 2 interacts with Model 1, I wanted to put together a couple things that have to do with risk and time.

These 2 images are information from Model #2 which is guided by Model #1
Image on the left shows how many new highs have been hit and which days/time the new highs hit. I compile my model information at roughly 5:00AM and 5:00PM every day. I make adjustments at only those times as well. I will monitor both models through the day but I do not make decisions or count data points away from those times. I do this in order to keep my models as consistent as possible. This data goes back 72 data points or 864 hours. The glaring thing that stands out is Monday 5:00AM data but more data collection is needed.

The image on the right is draw down data going back 864 hours. I have had 2 instances of draw downs between 500 and 400 pips. 1 instance between 300 and 400 pips, etc. The data is not the total amount of draw downs. For example, Tuesday AM 400+ pip draw down hit a 100+ pip draw down first (reflected in the Friday AM data point) and hit a 200+ pip draw down next reflected with a Monday PM data point.

I tweeted out this past week some information with regards to hours between new highs. I'm going to write more about the information at another time but here was the info I tweeted.

On March 15th 5:00PM I had hit 96 hours since a new high. My average hours between new highs in the last 864 hours (36 trading days) has been 36 hours between new highs. My top longest time frames between new highs are the following
1. 168 hours between new highs
2. 156 hours
3. 120 hours (ended Friday 5:00 PM 3/16/2018)
4. 96 hours

What I worked on this week and some random thoughts

This week I worked on trying to figure out some very short term predictability in my model 2 in order to enter some short term trades. (My average hold time for Model #2 is 33 hours currently) I tested the waters and was successful on my first attempt but I felt my risk was low since Model 2 was at the lows for the day and that usually doesn't last for too long during the Wednesday, Thursday and Friday time frames.

Short Term trade. Friday 8:46 AM to 12:05PM
Model #2 was fully invested in the following. All 6 positions had been at least held since 5:00PM Thursday
Long EURUSD
Long GBPUSD
Long GBPCHF
Short AUDJPY
Short NZDJPY
Short EURJPY

Model #2 was at the lows for the day and was showing signs of holding a base. I entered a very small trade on all 6 positions above and waited for a 100 pip move. If this move did not unfold, I would simply absorb the small trade into the main position and hold till my normal 5:00PM or 5:00AM Model #2 adjustments.

The trade
Short AUDJPY in 81.32 out 80.994 win
Short NZDJPY in 76.306 out 76.105 win
Short EURJPY in 129.766 out 129.584 win
Long EURUSD in 1.234 out 1.23595 win
Long GBPUSD 1.41316 out 1.41494 win
Long GBPCHF in 1.33984 out 1.33938 loss

Some thoughts on short term trading
Rather than analyze each position for the short term trade, I analyzed the Model #2 portfolio and then entered the full 6 position grouping that I was already invested in, with a smaller position add. Like I said, if the position didn't do what I wanted, I could just absorb it into the Model 2 holdings. I know more how my Model 2 reacts 100 times better than individual forex pairs.

Think of times you have had a few positions on for a somewhat long period of time. You probably know how those holdings react together, as you see your portfolio fluctuate, better than tracking and analyzing each individual position.

Overall I felt a good week with a consistent pattern of weakness in the Monday/Tuesday time frames with high levels of strength in my Model 2 during the end of the week. I'm not going to change anything based on days of the week since in January it was the opposite. Just taking notes on it.

@TicTocTick
Bad traders place trades and feel anxiety. Good traders place trades and feel good. Great traders place trades and feel nothing

Read in my twitter feed today from @TicTocTick

This is my goal. Cannot have this feeling unless you have confidence in your method/system.

I believe that the best way to develop a workable system that is effective, consistent and profitable is to have a Belief (Philosophy) or a Tag Line to work off of. For example mine is "There is a battle between Momentum and Mean Revision"

So every indicator that I developed. Every thought process I had. Every spread sheet I set up to test my trading system was centered around that phrase.

Thinking always in terms of that phrase kept me on task and brought me back to what my philosophy was, at the moments I deviated from it. It is too easy to go through this journey and not keep notes, not stay consistent, try every method you read about for short periods of time without giving any a true chance, etc.

If someone has spent the last 2 months developing their trading method and they have gone from idea to idea to idea, they really haven't given the full effort that is going to make them a professional trader.
I read Davit's Pivot trading forum from time to time and there are a couple things that stand out. #1 The rules are crystal clear #2 Some folks are so random/spastic in their process, even with a detailed road map, they still can't concentrate on the task at hand.

Another nice way to stay on task is to follow professional traders on twitter. Obviously it takes effort and time to figure out who are the pros and who are the ones that are just selling you something but to give you a start, follow @RealBrianWatt His methods in trading the Yen are unwavering. He is methodical. He is confident and he is always sharing his thought process/beliefs.
Well worth the follow

Have a great day

Avoiding Group Think and adding Creativity to your trading.

In my opinion, two of the greatest things to happen to trading in the last 10 years is Youtube and Twitter. With both Youtube and Twitter you can have access to some great information that you might never have been able to see/read before. People you might never have heard speak before now with click of a button you can find their presentations, interviews or personal vlogs. There has been a lot of information I have discovered over the years I have been on both of these sites but there are two instances that stand out as far as getting me to understand how important it is to be creative and solve things in ways you never thought before.

#1
Scott Grannis is a great twitter follow for Macro Economic thoughts. He mostly just tweets out links to his blog which is great. He is the retired Director and Chief Economist from Western Asset Management. He provides a lot of great information but one thing that stands out to me was a blog post he made a while ago that he mentioned how he has been doing some of his best work because of retirement. (I believe he retired about 12 years ago) He stated that when he wasn't retired, he would fall into the rut of group think since his day was filled with meetings with other economists and throw in the occasional conference with outside economists. Now he believes that he is free of group think because he has no interaction with other economists and comes to his conclusions by just mindfully thinking.

#2
I am a huge Anton Kreil fan. He offers great insight into the industry of hedge funds, trading, etc. There has been a couple times where I've seen where he was asked about his time at Goldman Sachs. One instance he talked about the difference between Goldman and the other places. Some quotes from the interview
"There is a massive difference between Goldman Sachs and the rest of the market"
"The best people in the market work there"
"a different type of intelligence than the rest of the market. It is a curious mind combined with a very very strong work ethic"

It is the interview at the Cass Business School in 2013 if you want to look it up on youtube. It is a couple hours long.

One last thing. I've read a lot about Nikola Tesla over the years. It is said that he would take long walks and just think/daydream/visualize. He could evaluate an idea in his mind, come up with potential problems and come up with the solutions just by thinking it through. That is some pretty cool stuff and should be something a trader should put on his daily "to do" list.

So I guess you have to evaluate yourself. Do you take any time to just think and visualize? Is all of your solution work done at a computer? Get away from the computer and go for a long walk and Think...Visualize...Day Dream. It is like anything. It takes practice but worth it.

Everyone have a great Easter