Automated Trading Systems

SharkIndicator’s Shark Week 2023 Webinar Recording – Preparing Your System for Live Trading

Learn about the crucial steps to ensure that your automated system performs within expectations. Thorough testing of an automated trading system before going live is crucial to ensure its reliability, performance, and effectiveness while minimizing potential financial risks. This webinar will cover best practices of system testing to help make your leap into live automated trading as safe as possible.

Futures Basics

What are Futures and How Can You Begin Trading Them?

Futures trading is nothing new but with the rise in accessibility and growing interest in speculative trading such as cryptocurrency, many are venturing into other asset classes including futures. So what exactly are futures, and how can you trade them?

Futures trading involves buying and selling contracts for the delivery of a specific asset at a future date, at a predetermined price. These assets can be a variety of things such as a physical commodity, underlying assets of an index or currencies. The futures market is highly regulated and offers transparency and liquidity, which can help to reduce some of the risks associated with trading. Futures contracts are traded on organized exchanges and are subject to the rules and regulations of those exchanges, which can help further mitigate risks.

Unlike futures markets, cryptocurrency markets are decentralized and largely unregulated, which can lead to increased volatility and risks  such as significant price fluctuations, regulatory risks, security risks, and other factors. Depending on how they are employed, futures markets can provide investment diversification and stability to highly speculative swings utilizing high amounts of leverage.

It is important for any trader to thoroughly research and understand the risks involved in any type of trading, and to carefully consider their own goals, risk tolerance, and financial situation before investing in any asset.

Leverage and Margin

Leverage in trading refers to the use of borrowed funds (i.e., margin) to increase the potential returns of an investment. In other words, leverage allows a trader to control a larger position in an asset than they could with their own capital alone. A single futures contract controls an exceptional amount of the underlying asset and it is not expected that the trader fronts the total value. For example, a single gold contract is for 100 Troy ounces  or a single oil contract is 1,000 barrels. In order to be traded, the brokerage will require a deposit or margin at a fraction of the contracts true value. This margin requirement works as an insurance that the trader will be able to cover losses if the value moves against them. Each day a minimum amount of capital is needed to support any outstanding contracts that the trader may have, this is called maintenance margin.

If the value of the contract moves against the trader enough, they may not be able to cover the losses which will trigger a margin call. This requires the trader to deposit additional funds into their margin account to bring the account back up to the required maintenance level. Failure to do so will result in the broker liquidating your position and possible further punitive measures such as closing your account and collection of any amounts not covered by your margin. Make sure you know exactly how much the maintenance margin requirements are for each contract you’re trading and stay well funded to avoid margin calls even if you’re in a losing trade.

Contracts Expire

Futures contracts have a set expiration date, after which the contract ceases to exist. When a futures contract approaches its expiration date, traders who hold open positions in that contract must either close their positions or roll them over to the next contract with a later expiration date. Contract rollovers allow traders to maintain their exposure to the underlying asset without having to take physical delivery of the asset itself.

For personal accounts, brokerages will automatically assume non-delivery and liquidate any outstanding contracts prior to expiration. Nobody wants to deal with taking responsibility of accepting shipment of 5,000 bushels of wheat!

Futures contracts are often denoted by their symbol,  2 or 3 character followed by the month and year that the contract expires. For example, CL 4-23 is crude oil (CL) which expires in April (4) of the year 2023 (23). It is important to keep track of when a contract nears expiration and to roll over to the next contract to avoid unplanned liquidation or drastic volatility and low volume leading towards the expiration date. Most popular contracts operate with contracts which expire every 3 months.

Getting Started 

To start trading, you will need to get and become familiarized with a trading platform. A trading platform is software which allows you to visualize market data and submit orders from. I’d recommend  NinjaTrader which is a popular trading platform and brokerage designed for trading futures, forex, and equities. It provides advanced charting, market analysis, and order execution tools for traders of all levels, from beginners to advanced professionals. They offer their award winning desktop platform for free with access to both their web and mobile applications.

Within NinjaTrader they provide simulated or papertrading accounts which allows you to get familiarized with futures trading and develop your own strategies. Whenever you’re new to trading any asset class, I’d always suggest beginning on a simulated account to understand things such as market behavior and getting a feel for the gains/losses for each tick of price movement.

If you’re looking to start with a smaller account and don’t want to worry about high margin requirements, consider looking into mini futures contracts which operate as 1/100 of the underlying contract. Many of the most popular futures markets have these mini markets!


Automated Trading Systems

The Importance of Automated System Testing and Fallacies of Backtesting

Automated trading provides several unique benefits over traditional, discretionary trading. Some of the most notable are their ability to operate continuously, execute trades quickly and adhere to its trading logic without the emotion that humans have. Human emotion often becomes a hinderance to the ability to succeed at trading due to the fear of loss and greed clouding one’s ability to truly think logically. Of course, there is a lot of depth to human intuition and insights which are not easily emulated in a computer program however I feel that the benefits outweigh those specific limitations.

Developing an automated system has never been easier with tools such as BloodHound and NinjaTrader’s strategy builder. With these you don’t have to strictly rely on a programmer to begin building your system and testing to see how the system performs through historical backtests and live simulations on a paper trading account. The only limitation you have is time and your ability to come up with new ideas to test and build.

While building a system is easy, the biggest hurdle that most new system builders have is understanding the reality and expectations between backtesting (historical, simulated trading) and live trading. There are many best practices in system testing and optimization that are overlooked which will ultimately lead to loss and system failure with unanticipated performance.

Backtesting systems provide a tremendous amount of insight into how a system can perform but is not infallible due to how the backtest processes data and generates execution logs. This can often lead to misrepresentations of performance and expectations in live trading. Even the smallest discrepancies per trade can cause a ripple effect that can turn a system which once looked promising into one that causes significant risk and losses.

It’s imperative that thorough and practical testing is done to give confidence that there are no surprises when you let the program run autonomously. Let Lucrum Trading Systems help with that confidence by employing their years of system testing experience on your next project and schedule a consultation today.

There are many questions to ask yourself; Is your data accurate, do you have enough data, is your slippage factored in appropriately, if using limit orders do you account for possible unfilled orders, is your order management configured to not close or reverse orders which haven’t been filled, are the bar types used showing a hindsight bias, do you have sufficient cushion for intra-trade drawdowns, are the system parameters fit to your testing data, are there ample failsafe in place in the occurrence of specific market conditions, is the system running in a stable environment with redundancy in the event of power/data loss? The list goes on about possible oversights which can dramatically affect a system’s performance moving forward and add additional risk you may not have expected.

The transition between simulated testing and live trading is not one to be treated lightly and a significant amount of time should be invested into building confidence that a system will operate exactly how you intend it to without any surprises. Be sure to have your system analyzed to prevent significant losses before you turn it on.

Automated Trading Systems, Uncategorized

How Innate Human Behavior Limits Effectiveness of Trading System Development

Designing any form of automated trading system is filled with follies of basic human behavior. The ceaseless desire to identify patterns in otherwise abstract data to the lust for wealth all cloud the appropriate diligence in creating a system with a measurable and meaningful competitive advantage.

Systems are developed with the idea of an initial truth, or the basis of how the system can otherwise find a way to generate a favorable reward to the risk applied. Once the idea of the initial truth is established, the process of creating the system is underway. This process plants several inevitable debts which can lead into a sunk cost fallacy which causes one to forcibly look for favorable outcomes in system performance.

  • Your time into creating the system
  • Your money into developing the system
  • Your ego of seeing your system succeed

Once your trading system is created and ready to test, the first two debts are already in play – you want the system to test well or that time and money invested would have otherwise been wasted. If the initial test looks poor, you will innately attempt to find ways to make it look better rather than scrapping it altogether. This approach leads to curve fitting performance as the data is already known and therefore used to your advantage. Tweaking the system to validate yourself will produce a system destined for failure in the uncertainty of future price data.

If the initial performance is good, while a positive sign, can be just as detrimental. The reason for this is that the acceptance of success puts a lesser emphasis on testing the fragility of the system with the fear that the initial results were unreasonable or just lucky.

Any system developed needs to be put through the proper stress test before it should be run in a live setting. In order to do this, you need to know the proper way to test the system in a way that honors the logic and perceived edge, but also shield yourself from walking away if the system is proven invaluable. The latter can be a difficult thing to overcome depending on how much time, money and effort was put into its development.

Lucrum Trading Systems is capable of being the unbiased third party to shield the inherent bias of a system designer and perform the necessary tasks to give confidence to proceed into a live environment. Schedule a consultation today to see how Lucrum can assist you with your trading system.

Your time and effort were put into the development of your trading system and while the initial investment may be great, the potential loss is even greater if it is not properly tested for live trading with the complete uncertainty of the future.


Building a Simple Automated System With Ruby and BloodHound

Learn how to quickly and easily begin building simple automated trading systems in NinjaTrader utilizing Lucrum Trading Systems Ruby and SharkIndicators BloodHound and BlackBird software.

This strategy, tested for the E-mini futures market uses Ruby’s trade trigger signals that are filtered with two other Ruby outputs. Watch the video to see how the system was created and how it performed in our backtest.


The Likeness of Entrepreneurs and Traders

When you think of the word entrepreneur, you may identify them as individuals who take on an assumed calculated risk to start a business in an attempt to become successful. While full time traders don’t directly create businesses that offer a particular good or service, traders need the same discipline, motivation and adaption to risk and other challenges along the road.

1. Any Venture is Risky

Entrepreneurs with the goal to start their own business will face the most difficult and often the most disabling element to achieving their endeavor. That challenge is overcoming the risk involved in starting your own business. No longer can you rely on the steady paycheck you have seen every couple weeks and no longer can you hold others accountable for your own financial status.

The risk factor is not something that I would suggest diving blindly into, mortgages, supporting a family and other debts can and should be an inhibitor to putting in your two week notice. Be sensible and weigh how much income you need to survive (not on the streets)  and calculate what you would need to accomplish to make that happen. Be conservative with your figures as there is no method to predict the unpredictable.

Always wade into a new venture and dedicate any available free time to develop your craft to build a foundation to transition to. If you’re a new trader always begin with paper trading to establish your trading style and what you build confidence with. For more experienced traders looking to go full time, focus more on reliability and keep performance outliers to a minimum.

2. Maintaining Discipline

A trader, especially one full time and reliant on performing is an extremely demanding job and somebody without much discipline will have a tough time seeing success in this industry. Each trade must be methodical, researched and undoubtedly to you, the right move at the right time. Often times, traders will begin to get sloppy after they get seduced by previous success.  When trades get sloppy, your risk grows exponentially and devastating mistakes can be made. Be sure to do your homework and be confident in your trades. Although you no longer have a nine to five, your day will be much longer researching, deciphering and searching for the next trade opportunity.

Maintaining methodical and rule based trading practice can help alleviate the stress and streamline your daily demands. Technical trading systems such as Ruby for NinjaTrader can provide a streamlined process to identifying trade opportunities.

3. Staying Confident

Successful entrepreneurs are the ones who can look you in the eye and with the utmost sincerity and say that they are confident that their idea will be successful. Traders must have the same mentality every day and on every trade. You must  believe in yourself and your trading system, when you begin to doubt, or let the irrationality of your thought process override your rules, you will never succeed.

When market conditions are unfavorable or a trade has gone sour, you must stay confident and not go into “system-override mode.” You can, and should look back as to why it happened, but when you start blaming the markets for being wrong or irrational, you might have a problem. While the negative attitude exists, your head is not in the right place to make successful trades. Taking a break and letting your mind come back to center is the best defense against this attitude. Brash trades with a negative attitude will be your Kryptonite. The markets and new opportunities will always be there tomorrow.

4. Cherish Supporters and Value Pessimists

For any new venture, there will be two sides to every proposal and generally they are one of these two: The supporter who feels that this is a great opportunity and they will do whatever they can to support you and the pessimist who will outline every possible situation on how it may fail. Both sides have valuable wisdom.

The pessimists will often have genuine concerns, doubts and hurdles to think about. Sometimes the excitement of something new will blind you from seeing very real challenges that you will need to consider.  The optimists will continue driving your passion and excitement. Embrace those who support you and take the advice of the nay-sayers without letting them slow you down or derail your dreams.

Traders will inevitably see a wide spectrum of varied success and failure stories from other traders. By maintaining proper practice in discipline and risk management you can put the odds in your favor to becoming another success story.

5. Motivation and Passion

Motivation and passion are almost synonymous however motivation has a distinct difference. Motivation is what keeps your eyes on the horizon and doing what is needed to keep tabs on everything to make great trades.

Keep setting the bar higher every day and never be content with where you are at. Keep on growing and be better every day.


Day Trading From Home Since COVID

It is no doubt that 2020 is a year that will live in infamy, unfortunately due to a less than ideal situation. COVID-19 has ravished the world, changing how people live, work, socialize, taking away jobs and many more lives. This disruption to the way people function within society has and will continue to shape the world economy for years to come. Many industries will die and many being founded now will flourish.

As the number of jobs moved to home operations sits at an all time high, many project that this trend will persist and perhaps even continue to grow after the microscopic threat subsides. An April 2020 MIT survey of 25,000 Americans has shown an increase of working from home of over 100% of pre-COVID levels. That means that nearly half of the U.S. workforce may now be remote workers. Many companies have noticed increases in overall productivity, employees enjoy the freedom of working from home, no more commuting and more opportunities to pursue hobbies and personal interests. It’s very likely that the work-from-home movement, at least to a higher capacity, is here to stay.

The COVID Market Impact

Due to the pandemic and its global implications to the world economy, 2020 to date has been an exceptionally volatile period as nobody seems to know the long-standing impact this pandemic will have. These are unprecedented times of which speculation of what is going to happen is running wild and that uncertainty is causing many to panic while others are seizing opportunities in a phenomenal trading environment.  

Long term investing will always shy away when volatility peaks. The common buy and hold, stay the course mentality has of course historically done well however that is also the investment strategy that can be extremely vulnerable during severe market declines. Long term implications of a post-COVID world has many traditional investors worried.

Day traders have begun seeing their time in the sun lately by being nimble during volatile times and taking advantage of many opportunities that have become apparent. The ability to be on either side of the market at all times will provide opportunities regardless of the macro economic situation.

Is it Time to Become a Day Trader?

Many who aspire to be day traders are unable to do so for various reasons, a large one being the fact that they are at work during key trading hours and are simply unable to participate. COVID has unlocked opportunities for some who would like to day trade and are now able to do so by working from home. While I’m not advocating abandoning your actual job while telecommuting to day trade; You can absolutely be involved in the markets with less attention and focus than you think.

Trading programs and systems exist which can help take some of the guesswork out of finding trading opportunities throughout the day. Lucrum Ruby is capable of generating audible alerts when the system identifies a trading opportunity. This allows you to keep minimal focus on the markets themselves until a signal is generated. Once generated you can do a quick analysis of the opportunity and see if it is a signal you feel like taking and execute the trade. Following rule based or mechanical trading lessens the impact of intra-trade analysis to keep you focus where you need it to be.

It is very evident that this uncertain trading environment breeds volatility which means more opportunities for the day trader. The real kicker is that now, thanks to telecommuting, the dream of becoming a day trader for some may now be a reality.

Stay Safe

Regardless if you’re new to trading because of work-from-home opportunities, new to trading in general or even an experienced trader it is more important than ever to look out for the stability of yourself. If COVID has taught us anything it is that things can change quickly and there is no amount of planning you can do to be fully risk-averse. Day trading and trading in general is not an easy endeavor and many for whichever reason will not succeed at it. Do not jeopardize you or your family’s well being by trading on an account that you could not survive without.

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