Zak Mir – Man v Machine

4 mins. to read

It is amazing that after the best part of a year writing for Spreadbet Magazine, that I have touched upon almost every arena of the financial markets; even that that money can be lost as well as made! However, I have not yet touched upon the aspect which, is in some ways, the one that interests me the most: trading systems / software.

Apparently these days, this type of trading goes by the more funky label – ‘Algos’. Indeed, I wish to claim www. and The AlgoTrader as my own, which I am sure our esteemed editor will do if he believes there to be any mileage here after reading this blog!!

The original title of this blog was actually going to be Man vs Machine, but was ditched on the basis that firstly in this day and age it is sexist, and second that it is only part of the issue at hand (Editor interject – I like the title so we stuck with it. Sue me for sexism if you wish. At least I’m not insulting the Welsh!). But I will start with my “human” call on the FTSE 100 from this morning at 8.20am:

FTSE 100: 6,793 Towards 6,850

We really are in blow off mode as far as the FTSE 100 is concerned, with perhaps the issue that makes it all the more exciting being the way that there is still nearly 200 points to go before the all time high is taken out but, this market is already very overcooked. Nevertheless, we are backing the buy side with the trend, and a 6,850 plus target for later today. At this stage only well below the near term moving average on the hourly chart at 6,780 really provides any hint of topping out here.

Tuesday’s Day Trade: Buy 6,750 or better (no higher than 6,760) Stop Loss 6,710 Up To Breakeven When FTSE 100 Rises to 6,760 Target 6,820 Result: +53 points versus London close

Wednesday’s FTSE 100 Day Trade: Buy 6,795 or better (no higher than 6,805) Stop Loss 6,755 Up To Breakeven When FTSE 100 Rises To 6,805 Target 6,850 Result:

The call I make on the FTSE 100 daily is in the first few minutes of the day and is always a buy or sell – nothing wishy / washy, and always has a 40 point stop loss and 50 plus point target. Luckily, for the purposes of this blog which was planned today, the call will have hit its target to leave me notionally up 55 points versus the 6,795 or better entry.

We can then contrast the performance with a couple of pieces of trading software for MetaTrader 4 which I bought some weeks ago.  Just going by today’s 5 minute chart performance on the June FTSE 100 (to the right of the white vertical line), there was the buy arrow at 9.20am at 6,777, sell at 10.10am at 6,763 and the final buy at 6,773 before the market shot up on Bernanke.

All in all, at the time the snapshot was made (just after 3pm), you would have lost  approximately 24 points initially and running a notional 70 point profit – waiting for the next signal to come in to reverse and go short.

In fact, you could therefore say that as things stood towards the end of Wednesday’s session there was not much in it between the two approaches in terms of profitability. But of course, the human touch here required over 20 years of day in day out experience, whereas presumably anyone who can tell the difference between the colour red and blue could have pitched up and become a FTSE 100 “expert” with the £80 software! The other point to note is from the example of yesterday – to the left of the white line, we are looking at a system that does the same thing day in / day out, doesn’t have a hangover, or a bad hair day.

It is perhaps also worth looking at the FTSE 100 from the perspective of another system acting on a one minute chart. If anything, I like the performance and style of this even  more and it is very  transparent in terms of when there may be a turning point. Essentially it appears to be a filtered / intelligent Parabolic indicator – and very good with it. The only sticky point of the day was the need to reverse the final short position very quickly, just before the FTSE 100 took off during the afternoon.

Just to finish this mini tour of Algos I leave you with the “Parabolic” treatment of Sterling / Dollar 5m today – I defy even George Soros to have caught the turning points today.

Incidentally, as I am not a software salesman, if anyone wishes to know what they are they are or would like to see any more of my favourite day trading algos in future blogs, get in contact. and email editor@spreadbetmagazine who will pass them on!!

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