Tuesday, December 2, 2014

Mandelbrot Forex software development (Pt 2) | We get probability on our side

As mentioned previously, the development of the software used by OmiCronFX in its Forex trading has three distinct elements. These are:

1.         Defining the trading strategy
2.         Coding and debugging of the software, and
3.         Optimisation of the trading parameters

All three are interlinked. The honing of each element is carried out by reference at all times to the other two. Therefore development as a whole is an iterative process, in the fullest sense: The strategy has been modified many times as a result of discoveries made when both the software writing (coding and debugging) and the optimisation of the parameters were taking place, and each of the others is affected thereafter by adjustments made to the strategy and to each other.

As can be imagined with such a process, there are many blind alleys waiting to entrap the developer. The most insidious of these are, perhaps, those that pertain to the reduction of risk. Our focus has been at all times on the minimisation of risk but, oftentimes, the magnitude of risk exposure is not obvious and it is only when one is confronted with the adverse effects of taking on too much that it becomes truly apparent.

Getting probability on the side of the trader

It has been a basic principle from the start that making profits in Forex trading is a matter of getting probability on the side of the trader. This entails a consistent, systematic and, ultimately, repetitive approach, but only after much work has been done to ensure that losing trades are (1) as scarce as it is possible to make them and (2) result in the smallest conceivable losses that are consistent with allowing the trade to have its full potential to make profit.

After going through the process of developing a system such as Mandelbrot, one gains an outlook that is quite philosophical. The concept of time takes on a more refined meaning (entailing a real appreciation for the need to live in the present, and only in the present, and to recognise and totally reject any tendency to tolerate hindsight-related knowledge). It becomes very clear that the proposition that anyone, anywhere, can, without inside information or other unfair means, foretell what is to happen in the future, is an absolute nonsense.

To be continued - coming soon:

Defining the trading strategy

·           The trade entry trigger

*        Make sure that entry only takes place when there is the highest probability that it will be a profitable one. Spend many, many hours experimenting to find the conditions where this will be the case

*        Give the trade enough space to become successful but ensure that if this is ultimately not to be the case, the loss will be the smallest that it is possible for it to be

·           Risk control

                        *    Eliminate the danger of taking on too much risk
                        *    Lock in profit as soon as it is worthwhile to do so
                        *    Control of Stop Loss levels at the start of the trade and as it progresses

Coding and debugging the strategy

·           Some programmable platforms are better than others, but this is still a new industry outside of the major banks and hedge funds

Optimising the parameters

·           Historical research on the price action of different currency pairs
·           Simulated trading with historical data, and real-time trading
-           The place of Fundamental and Technical Analysis

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