My Journey to Fully Automate My Trading: What I Learned After a Month Into Fully Automated Day Trading on TradeStation

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I still remember the day I launched my automated trading – sitting tight in front of the screen waiting for something to happen. And then suddenly it is already a month since the launch. Time really flies!

Over this month, I actually learned quite a few interesting things that many you will find useful.

TradeStation Second Login

First trouble I ran into was that once the automated trading went live the account is logged in 7/24 from my trading server. So, if I need to develop new strategy or code on TradeStation I have to remote login to the trading server. That is not a good idea because bad coding and human mistakes can interfere with the live automated trading strategies. It turned out TradeStation can provide you with a second login id. The trick is to use this 2nd id only with the sim account so that it does not interfere with the real trading account.

As long as you do not need real-time data on this 2nd login, there is no extra data fees. I now work happily on my laptop with TradeStation this way. It is a very nice discovery.

Fills are Not as Bad as I Thought

Since I am converting my existing models developed on my proprietary platform into TradeStation, I thought latency is going to be an issue. I am pleasantly surprised that it is not the case. Fills are timely and no real slippage.

It makes sense though.

First, the day trading strategies I converted to TradeStation so far are not my HFT ones. They are slower and just need reasonable execution speed. In the past, internet stability and speed were big issues. Hence people like me did highly customized work with co-location servers near / at the exchanges. From the results so far, those concerns are no longer an issue.

Second, infrastructure has improved so much that order routing at retail brokerages are now much faster as well. So, unless you are really into HFT space, retail day trading in this era is pretty level with the institutions.

Latest Generation Computers are Overkill

TradeStation and many other retail trading platforms used to require serious computing power just 5 to 6 years ago. That is no longer true thanks to the improvement in hardware over the past few years.

You can just pick up a cheap 2nd hand computer with Windows 7 Pro for trading for as low as $300-$400 Canadian dollars. It is less than $300 US dollars. The most important thing is to get a quad core CPU so that Windows can run smoothly alongside your trading platforms.

What’s Next

I am converting next set of trading strategies now and plan to incorporate that by end of April. For the first set of trading strategies, I ended up having a complete framework ported over to EasyLanguage. This time, another framework will have to be converted too. I plan to release all these useful code libraries in near future. I just need to figure out how to do it properly.

For example, I don’t see a decent set of functions providing information like holidays and FOMC meeting schedule on any trading platform. But it is critical to know these things even for a normal trader. This is a fundamental tool for building reasonably robust trading strategies yet it is nowhere to be found.

Maybe all the pros are keeping these tools to themselves. Just kidding.

What Supplement I Took to Cure My Seafood Allergy

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So, people want to know what supplement I took to cure my seafood allergy since I wrote about it last time. I did not put that in the blog because it may not be applicable to everyone since it was prescribed to me by the good doctor. However, for the sake of science, I will cover the topic in more details.

First, my seafood allergy is not something I acquire later on in life. No. It was there since I was born. I know because my mother likes seafood and I was allergic to her milk right from the start.

Second, the supplements I took is a combination of vitamin B12, vitamin A, vitamin E, flax oil and borage oil. Pretty much over the counter stuff you see out there. It is not any special magic formula at all. The most interesting thing though, is that the dosage I took is a lot higher than the recommended daily intake by whatever bullshit standard out there.

Third, the doctor had me taking the supplements for a full month. And he said that I must avoid all allergic reaction during the month or the treatment may not work, meaning that I have to restart the one month treatment after the allergic reactions ended. I was told that once the allergy is cured, there is no need of maintenance of any kind to keep me allergy free from seafood.

On the treatment method itself, I can explain it in the view of traditional Eastern medical practice.

From what I learned when I was young, that for certain types of long term body ailment, Chinese medical doctors often give the patients herbal drugs that mildly damage their bodies to induce self recovery. Moreover, similar to what I was told by this doctor, that if the ailment occurs during the treatment process, the delicate treatment process will have to be done all over again after the ailment is taken care of first.

So the concept is not that difficult to understand. For those who like investigate further, you now know the details.

My Journey to Fully Automate My Trading: Never Day Trade from Your Laptop

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One extremely silly thing people do is trading from their laptops. There are so many things that can go wrong with that I seriously wonder if the motto “Hope for the best, prepare for the worst” ever come across the minds of these traders. Wireless connection can drop easily at the wrong moment – when you have a size position on and need to get out, or that you need to get into a position yet your order is not transmitted.

So it is not just an issue for mechanical traders. It is something affecting discretionary traders too. So all these people out there showing themselves trading off their laptops, is really doing the aspiring traders a disservice.

The VPN + Remote Control Workaround

The solution is really simple – have a half decent computer installed at home with a stable Internet connection. Run your trading platform on that computer. Problem solved.

But you want to be able to trade from anywhere instead of being confined to the seat in front of your computer at home. No problem – the trick is to connect your laptop to your home network through VPN and remote control your trading computer.

There are many advantages to trade through this arrangement:

– stable connection means active orders and automated trading strategies will not be affected by your flaky wireless internet connection with your laptop

– you can easily upgrade the setup to a professionally managed server that you lease near the exchange for even better stability and security

– minimize the chance of computer virus and other malwares from infecting your trading applications since they are setup on a clean computer, not your laptop for which you may visit one too many times naughty websites

– you can use any kind of computer or tablet to remote access the trading computer. For example, you may love to use Macbook Air yourself for day to day computing but your trusted trading platform could be Windows based application.

– instability of connection to your trading computer from your remote access will not affect the trading application itself from talking to your brokerage, hence your live orders, especially those target and stop orders have a much better chance to survive

There are several ready-made solutions you can try out.

If you use Windows only computers, you can use its built-in Remote Desktop application to access just your trading computer.

If you like to mix and match, TeamViewer is a functional platform allowing you to do the same.

What I Do

For my own setup, I have chosen a barebone core-i7 Windows 7 Pro computer as the trading computer. The reason why I choose Windows 7 Pro is that it is stable and we can easily stop it from getting new updates from Microsoft. It is very important that a trading computer does not automatically doing whatever it feels like and reboot randomly as if it has a mind of its own. On this front, Microsoft has totally failed itself as a mission critical OS since Windows 8.

On the trading computer, it has absolutely nothing except the trading platforms.

For VPN access, I use Softether VPN because I also like to access all the other computers in my home network. But you can keep it simple with just standard Microsoft Remote Desktop to access the trading computer only by poking a hole to your home network.

I often have to travel and this setup with the trading computer safe and sound in a secure location makes it much easier for me to monitor the automated trading from anywhere in the world.

I am very happy with this setup so far and the trading computer has been running 7/24 with no trouble at all for several weeks already. If you are serious about day trading and mechanical trading, consider doing this as soon as possible. I am sure you will be happy with the results.

How My Lifelong Seafood Allergy Was Cured

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I was allergic to certain kinds of seafood. Just some of them like lobsters and shrimps, not all of them. It has been a lifelong issue since I was a baby. Interestingly, I suppose it is now cured. It is a fascinating story to share.

Being allergic to food is not a minor issue. Many people who do not have such problem have all sorts of wrong ideas about it, making the life of those who have it suffer badly. Unluckily, both of my parents are not allergic to food. Just imagine what traditional parents, both Western and Eastern worlds, do when they think that you are just picky with your food but in fact just one bite would send you to hell.

The story of how bad my allergic reactions were can go on and on for many pages which I am going to skip them all for now. The main point is that my allergy is at the serious level for which rashes would flare up almost instantaneously and other symptoms like fever would follow as well. It used to take weeks of heavy dose of anti-allergy drug to suppress the symptoms until they go away.

The turning point is what I like to focus on here.

My friend found a doctor who cured his son’s allergy. And I saw it with my own eyes that indeed his seafood allergy is gone because he was enjoying a feast of seafood with no problem at all. So I determined to get an appointment to meet with this doctor to see if I can fix my allergic issue for good.

I eventually met with this doctor and went through the examination process. He prescribed a set of supplements for me to take over a month period. I faithfully followed the prescription for the month with a few days for which I could not do so when there was schedule issues.

That was more than a month ago.

Yet, I did not have the courage to try some seafood to see if the allergy is gone. It is not that I am afraid of the reactions themselves. What I worried about is that it would keep me in bed for days which would delay the progress of my projects.

Last week, when several projects were finally completely. I have decided to finally take the ultimate test of my treatment. I ate shrimp. There was no rashes, no itchiness and no other issues whatsoever. Since then on other occasions I tried to eat other types of seafood with no ill effects at all.

I am cured. A lifelong medical condition that is supposedly not treatable is now gone for good. Amazing!

My Journey to Fully Automate My Trading: Your See a Hammer, I See a Doji

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I conduct my research on trading strategies on multiple platforms from Excel to almost everything that I can get my hands onto. From concepts to actual strategies, it can be as simple as just several lines of code to thousand lines of code. To say the least, It is a long and tedious process that takes patience. Similar to any other scientific research, even if your method of analysis is rigorous, your analysis is as good as your data only. If the data you get has consistency issues, your analysis will be questionable. And here I am, dealing with exactly that – data inconsistency across various data sources made available to retail traders.

Forex Traders Live With Data Inconsistencies All the Time

This data inconsistency issue is very common with forex trading. In general, the quotes you are getting are just consolidated quotes from several major banks that a brokerage has clearance through. Hence if you switch to a different brokerage that use some other banks for their forex clearance, your quotes would be drastically different. You may wonder why that matters since the price would be moving in the same direction within seconds. After all, due to arbitration opportunities from this type of discrepancies, they will be taken advantage of and quotes across different sources will go back in sync quickly. However, this minor difference can alter the decision making process on hundreds if not thousands of autotrading robots when a binary condition is flipped from one way to another.

For example, an hourly closing price can be very close to the previous day closing price. Many simple trading algorithms and human traders will take the cue very seriously whether such closing price is above or below that reference price level. Drastically different actions would be taken based on that simple logic alone. Hence, many professional traders never change to a different data source for trading because they know very well that such difference can lead to disastrous effect on their trading.

Centralized Trading at Exchanges is Supposed to Avoid this Problem

For index futures like the Emini S&P and stocks, they are traded in various exchanges with centralized bid and ask queues. The quotes are unified with trades recorded in sequence. Ignoring the dark pools which are not part of the normal markets, the centralized trading of these markets is supposed to avoid this inconsistency in data issue completely. In fact, we do get very clean historical data for all these markets going all the way back for at least 20 years.

So the data inconsistency problem should not exist with these markets, shouldn’t it?

Well, that’s not what I find out from my back testing of the same trading strategies across various platforms on Emini S&P.

And after careful analysis of the different versions of the algorithms based on the same logic, I discover the root cause of inconsistency in historical trading performance has nothing to do with my code. Luckily, I have experience is dealing with such issue with my forex trading so it does not affect me much. I am just surprised that the problem of such inconsistency still exists today.

Welcome to the World of Sub-Second Timestamp

On tick data resolution, meaning that every single trade is being compared, there is really ignorable differences among the various sources of historical data. This means the centralized trading at the exchanges in fact unified the data. The problem, interestingly, comes from various implementations of data collection methods into time based records.

The issue really boils down to a simple question – what do you consider as part of a one minute interval?

What I am talking about is how a programmer choose to collect data into 1 minute records can make a big difference in the charts you see everyday.

Conceptually, a minute starts the moment right when the zero second mark hit and the it ends right before the moment the next zero second mark is hit. This is pure science. There is really nothing to dispute about this definition. However, the programmers who are tasked to write the code to record the historical data, may have interpreted the concept of a minute with their personal interpretation.

From what I see, there are programmers who keep all the trades that happen with the zero second time stamp (e.g. 1:00:00) into the current 1 minute record. i.e. 0:59:00 to 1:00:00

However, that is technically wrong because all these trades actually belongs to the next minute. i.e. 1:00:00 to 1:01:00

These programmers do not realize there is no such thing that happens precisely at zero second mark. Anything that is recorded with that time, must have happened after. If they pay attention to the fact that these trades are happening between :00 and :01 with sub-second timestamp. e.g. 0:59:00:30

I can tell you that the most expensive institutional feeds have this done correctly. So are the more expensive retail data feeds that you have to pay money for. But not true for many others platforms out there.

Nightmare of Data Inconsistencies

What does this inconsistency implies?

Well, if you use price patterns on intraday data (and on daily data occasionally too) with your trading strategies, you may get totally different results when you switch from one brokerage to another.

Your moving averages are not really that precise depending on which data source you are looking at.

For some platform, your trading strategies do not execute until 1 second later while the institutional traders have a head start of 1 second before you do.

All sorts of technical indicators including oscillators will suffer from this data inconsistency.

It is not just the close of a minute record that is being affected. If the high or low of the minute happens to be the last second and that your feed includes the extra one second of data, the high and low could be affected too.

A Lesson to Remember for All Traders Not Just the Mechanical Traders

I am not saying that the data inconsistency would render intraday price data analysis completely useless. What I am saying is that you have to be aware of this widespread issue to build robust trading algorithms. And it does not just stop there because this matters much for discretionary traders too.

Many people who have never used multiple brokerages and different data sources have a simplistic worldview of the financial data they are working with. They have no idea that when they see a bottom in the making on their trusted 5-minute bars showing a candlestick hammer is in fact just a doji for thousands of traders out there.

Or that they are getting their favourite moving averages making a turn or crossover is just a kiss between those lines for many other traders out there.

Stop seeing the charts in black and white like that is the first step towards a much more robust approach to chart reading and technical trading.

My Journey to Fully Automate My Trading: Peaceful Launch of My Automated Trading on TradeStation

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This past Monday, Feb 25th, I finally managed to get small part of my automated trading strategies ready for live trading on TradeStation. It was one hell of a long journey to convert my algorithms from my custom trading platforms onto a retail broker platform. I learned a lot from the process and gained incredible insights into some many areas in trading that I thought I already know.

As the Chinese proverbs say,

The journey of a thousand miles begins with one step –  Tao Te Ching, Laozi

千里之行,始於足下 – 道德經, 老子

The moment I decided to move onto this path, I know it is going to be a huge commitment on my part to get to the finish line. So many obstacles and road blocks making this project such a huge challenge. I just looked up my blog posts and found that the earliest post about my intention was back in March 2017. That was two years ago.

I was so overwhelmed by the difficulties that I kind of giving up to write about the progress. There are just so many issues to tackle in various areas of trading making it hard to decide on what to write about. I did not write about it but I do keep notes on everything. That’s my habit all these years. I even recommended the practice to all traders in my writings all the time.

This is not the end of the journey though since my goal is to convert multiple sets of algorithms into live trading strategies that work on various retail platforms so more work has to be done.

I am very glad that I have chosen to walk down this path. At this point of the journey, majority of the technical issues are now taken care of. I am at a happy place to say that the rest of the journey will focus on more strategic development of my automated trading. I will have time freed up to catch up with writing about this amazing experience.

I am setting up a page in my blog for this series finally,

http://thelawrencechan.com/my-journey-to-fully-automate-my-trading/

Enjoy the show!

Back to Canada

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I came back to Canada last weekend. Lucky that I do not have jet lag since I had to jump on top of several issues that night I landed. Been ultra busy since to catch up with so many things. At 2 am Saturday, this is the first moment I have some quietness to sit down and reflect on my experience from the trip.

What I Did in Asia

For majority of people travelling to Asia from North America during the year end holiday season, they are taking a vacation break. For me, it was essentially 12 hours work day pretty much everyday since the first day my flight landed in Hong Kong. Those exceptions are taking a detour to Singapore and other destinations, attended a wedding and had a special medical check-up.

Outside of trading, I invest in start-ups and do deals that interest me. Many people want to meet with me to see if there is any business opportunities. Others are looking for macro level financial advice from someone who is well connected and really know what is going on around the world. And occasionally, there are others with special reasons that have very interesting stories worth telling when I get the chance.

Going to Singapore to meet with several DaytradingBias.com members was the highlight of the trip. Very happy to see some new faces and those I met with the year before. It is nice to get to know you all better in person!

The Dilemma of Hong Kong

Hong Kong is in a very difficult position now than ever.

The unaffordability of living spaces for the middle to lower income families continue to get worse. Imagine how difficult it is to live in the city when the lower bound of around $18,000 HKD per month for a tiny 200 to 300 sq. ft. apartment in an average location. The same amount of money in Canadian Dollar is about $3,000 which can get you a decent space in a good location for a 1,800 sq. ft. condominium or an even bigger town house. Such compression of available living space has squeezed the life out of the people in Hong Kong. The so called middle class is now long gone.

Yet Hong Kong is still ranking as one of the top cities in the world for business opportunities. However these opportunities may not be accessible easily to those who are struggling at the bottom. Hong Kong is still a good playground for people who has the right connections and the necessary capital.

Everyone there seems to be more sensitive to opportunities in making money than anywhere else I have visited on Earth.

YouTube

I did a pro bono presentation titled “Investment Outlook 2019 according to STOPD” in Hong Kong at the Rotary Club of Kowloon Tong meeting on Jan 7th. It lasts about 2 hours and I did a powerpoint presentation for the event. The participants tried to capture the session in video. However, the voice recording was not as good as we hope for. Lessons learned from the experience and next time I will use a mic for direct recording separately.

The presentation was done in Cantonese so not everyone can understand it. If you want to watch the video (it is just me talking without the powerpoint slides), follow this link.

I am having the powerpoint presentation redesigned for YouTube. Once it is ready it will be uploaded. I will write a short article to explain some of the slides that may not be self explanatory.

If this approach works out well, I will try to do more videos in the future.

Planning Ahead

I have a line up of projects to be completed this first quarter. Talking about being busy in Asia, that was mainly meetings and brainstorming sessions. Here, back home, it is actual work to be done.

The 2nd edition of Trading Success Blueprint was ready …. until it is not. The trouble with the file format issue (Thanks Microsoft!) set me back couple of weeks until the pictures in the manual are restored back to the correct places within the manual. It will be done eventually.

Trading account applications that I thought was taken care of before I leave for Asia turned out to be half done. There is no mistake on my part, just that the brokerage side somehow were in party mode by the end of the year and failed to handle the matters properly. More waiting on this front.

The last pair of VIX based real-time trading signals / day trading strategies will be released for Emini S&P. This is under testing in real-time. So far so good, everything looks on track.

The manual that I expected to publish on these VIX based trading strategies is now going to be split into two manuals as suggested by one of the early readers. I am convinced because he actually did the split up for me and showed me that I was mixing up two different things into one. Namely, there is about 100 to 150 pages of manuscript written on day trading strategy design and principles that has nothing to do with the VIX trading methodology. He suggested that I turn that part into an independent volume with day trading strategies illustrating how it is done with just price data alone.

I think it is a great idea. So back to the drawing board and more work to be done. The good thing is, this additional manual will definitely resolve many issues for traders and giving them a head start in the day trading game. I will make sure it becomes an important trading manual for all Emini traders.

Good to be Home

I was asked how can I take on so many projects at the same time. Well, first, I am not doing all these things by myself. There are many others helping me out making all these things possible.

During the trip, my exercise regime is disrupted and my diet is not optimal to say the least. And I was loaded up with coffee throughout the day making me hyper (as evident in the presentation video). I just slowly re-introduce myself back into my rigorous routines since I have several goals related to health and physical fitness that I like to achieve. Will write about this front when I get the time.

I thought I would have time during the trip to post something. I ended up taking notes that filled one whole notebook with no time to spare. Interesting experience to pick up the pace and doing as much as I can with limited amount of time.

Feels great to be home.

For those of you who celebrate the season, Happy Chinese New Year!

On the Road Soon. Meet Up and Gathering Anyone?

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I expect to hit the road next week. I will be going to Hong Kong and Singapore to meet with my business partners and give out talks about the markets and trading. My schedule is not as crazy as the last few trips. So, here I am letting you all know that if you are interested, we can meet up in Hong Kong or Singapore.

It does not need to be all intense discussions about trading and market directions. We can just chill and get to know everyone.

It will be fun!

Busy Busy Busy … Waiting for 2019 in Excitement!

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I have not posted for a long while here in my own blog. Feel kind of guilty for being so quiet. Here’s an update of what is going on in every front.

The Site Update

DaytradingBias.com has finally got its long deserved update. It is now mobile friendly and ready for the next level of client support. I am very happy with the result so far. I have in store big plans for the site in year 2019. I will announce the new services and products when they become available.

Trading Success Blueprint 2nd Edition

My trading course Trading Success Blueprint has been very well received since its launch. Many long time premium members sent me feedback that something important is missing from the manual. I hear you all and I have just completed three new sections to the manual for its second edition release. Once they are edited properly, it will be made available to everyone who bought the first edition.

In fact I am turning TSB into a live project! I am offering lifetime update for free to anyone who purchased the course. I am also making available a special support area online so that users can download strategy code and other things much more easily. And third edition of TSB is already planned. It will fulfill another request – a forex day trading strategy example.

My Fund

My work on my fully automated fund is 99% ready. I have decided to launch it sometime in January. It is very difficult to port trading strategies created in NeoTicker into various trading platforms. So much of my time was wasted in recreating the multiple timeframe framework in these other platforms. Right now I have everything necessary to move forward with this project.

My Trading Service

A version of the trading model will be made available through brokerages. I will have more details once I have completed the process. For those who expressed interest in the past and present asking me to manage their money, I am very flattered. I think this will be the best way going forward allowing everyone to participate. Due to liquidity issue, the model will be released with strict control on the number of contracts I will allow through the brokerages.

Yet to be Named Course on Advanced Trading Strategy Design using VIX

For those of you who want to learn more on how to create these trading strategies I am using myself, I am still working on the course right now. It is already longer than the 2nd edition of TSB excluding those appendix stuff. It is like an extension of TSB with focus on how to design trading strategies suitable for day trading purpose. I also provided an in-depth look into VIX and its leading properties for swing trading and day trading. It will be the next most important course for anyone interested in building their trading career.

Workaholic? Maybe …

Over the past 2 years, due to various reasons from computer issues to platform glitches, many of the projects I am working on were grind to a halt. Well, by pushing things forward slowly with patience, the efforts finally pay off. It is very exciting to see so many things getting through the finish line at the same time.

When Everybody is Wrong

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My Big Picture Summary for DaytradingBias.com Market Bias Observer newsletter, Aug 2018 issue. With charts!

The large hedge funds have been underperforming the markets for several years already. They look so bad that many gurus out there came out slamming the industry as a whole. Well, even David Eihorn’s Greenlight has reported his fund is down about 19% for the year. Is the era of big hedge funds really over?

Don’t forget that these funds have all the resources to hire the best to work for them. They have access to information that retail investors and even institutional investors do not have. Yet, the results clearly pointing to something going wrong. So what goes so wrong?

My understanding is that these famous hedge fund managers are actually very good in what they are doing. The main problem is that they all depends on the framework of top-down analysis based on their specific macro view to allocate their resources. If their macro views do not lead to the correct forecast of the market environment, everything they do, will be at best crapshoot. That’s the very essence of trading and speculations. You do not win on every single trade.

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Since the year 2013 when the S&P 500 is set up to breakout above that long time boundary at 1600 and that Nasdaq 100 making new all time high, we have entered a new era where the prior 20 years of trading environment is transformed into something new. That shift of expectations created a unique situation for which the shorter timeframes have now dominated the price movements of almost every financial market.

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We have seen such environment before, and the pros who are not close enough to the price actions suffer. For example back in year 1999, majority of the pros working for big firms were laughed at because they cannot make money in the so-called easiest trading environment because the stock market went up pretty much every day. Pros are beaten up so bad back then many even give up their career in the industry.

But we all know what happened afterwards. When the new era eventually run its course, like in year 2000, the normal environment would return. The shift will cause chaos and the pros will be the ones who survive.

I dare to say this, when even the best hedge fund managers are not doing well in shorter timeframes, it is a sign that the bull market is going to end pretty soon.