Very Volatile markets
In case you wonder what’s up with me these months. It has been a fruitful 6 months, since I started working with Excel, Maths, Models, Historical Data. Take these together and I call it Monte Carlo Simulation.

Initially I started worked with producing Pure Random data, with volatility parameters to simulate the Brownian motion of stock prices. Comparing SGX and NYSE, its a different way of coding it, anyway I was trading the US markets.

http://en.wikipedia.org/wiki/Monte_Carlo_method

So then came along Algorithms, the things that say if A is X and B is Y, then it A/B = 0.02 and bla bla yada. That’s how I came up with my first “Algorithm”, designed to detect market movements and pressure, be it up, down or sideways. By the wy, this was history because it was used as a platform to test out my Monte Carlo (Hail the great 1st Algo!!!)

Great learning though, things like Fat Tails, Probability Distribution Function, Law of Large numbers, Curve fitting, Real life trading, Cut loss simulations and certain Black Swan Scenarios were built in to “Stress” my Algorithm. Then I came up with more and more Algos, Algos that are supposed to detect and manage different stuff, like Breakouts, Opening / Closing, Spreads, Trends, Reversal, and etc…

http://en.wikipedia.org/wiki/Algorithmic_trading

They required more CPU x core speed, and tons of Excel spreads running on my 3 computers, about 30+ of them dealing with different paramters, volatility, different pricing models, etc etc… That took me 2 months.

Computers meets Wall Street

Then it was easy; With random data running all over my Excel, I soon replace them to take in Data from Finance Google. Nevermind HFT running level 2 quotes, trying to Front run Bids/ and Asks at 900 microseconds, (the link from SG to NY is 300 ms on average all major ISP, unless I colo my system to US :> )

http://en.wikipedia.org/wiki/High-frequency_trading

Pulling data from Google Finance was easy. I started coding in Human reactions, or things you would do or behave, automatically. Eventually, I’ll complete the task: Interactive Brokers TWS platform, with my excels connected to its TwsDDE.xls. See my next blog post. It’s magic .

Automation vs Manual

As a Portfolio of strategies, I now allocate my capital of 40% to this Algorithm trading, and 60% to all the other strategies including Asset Allocation based long term trading and other derivatives strats.