Discretionary use of the robot
For instance, if we are trading a purely contrarian game without stops, when starting up, the bot, in its "initial blindness" has no historic information about what price range it is trading, so it can be useful to define discretionary bounds (allowing first entries only beyond given prices, "support/resistance") which, in practice, can systematically "compress" the expected drawdowns.
Another important example is the definition of option games to "protect" the action of the automated scalping action.
1. Folio selection
While the bot is a fully automatic system, it is important, once gained
familiarity with the system, to understand all the possibilities of "discretionary"
intervention. This understanding along with the personal skills and smartness of a trader can result in
a tremendous boost of performances, on top of the already good
performances of the bot.
First of
all, by a careful selection of the instruments to be included in the folio.
Ideally, we want to stay out of troubles as much as possible, and whenever there
is some indication of any condition which could hurt our strategies, it may be safe to
avoid them, if possible. For instance, when using an unstopped contrarian game,
we would prefer instruments near to extreme of the range and in addition we will
define appropriate bounds (especially is our capital is not large).
The use of the folio performance panel,
with all its indicators (correlation, speed, volatility, etc.)
can also be very useful to identify the most appropriate players.
2. Discretionary bounds (contrarian strategies with no
stops)
Every time you add a new instrument in the contrarian game with no stop, you must be aware of where you actually are on the historical chart and place bounds being well aware of where you want the bot to trade. You can let it trade unbounded, but you must be aware of what you are doing and what is the potential risk. The main function of the bounds is to delimit the trading area, so that we can exercise, probabilistically speaking, a good control on the risk we take.
3. Forced directional entry
This is useful to force the first entry in a specific direction only. For instance, if a clone instrument is replicating an instrument which is probably near range exhaustion, one could place a discretionary bound and force the appropriate directional entry.
4. "Injected" entries
This allows the user to add manually entries
which will be treated "as if" they where created by G-Bot (they will
be automatically close by the bot according to the rules of the respective
players, CT and T).
Using wide bounds (to "compress" the DD area) along with this feature, allows a
smart trader to boost his profit, while keeping a verly low risk profile. This is
ideal with the contrarian strategies and when little capital is avalilable, so
that prudence is essential. To open the "entry injection" dialog, click on the
"Inject" button, or on the "ball" icon on the monitor window.
You can create 2 type of entries:
CT entry (most common): this will contribute to the CT (contrarian) layer of
the strategic game.
Essentially is an entry which will close at a profit proportional to the DD
("contrarian" entry)
T entry : this will contribute to the T layer of strategy. Essentially is
an entry which will close at a larger profit proportional to volatility
("trending" entry).
5. Manual orders
Manual orders can be useful to overlay a discretionary layer over the automatic strategy.
Manual orders could be placed on the single instrument while autotrading.
Just click on "Go Manual this instrument" (or the "Manual mode" check box) and
then proceed with order place by clicking on the "Buy"/"Sell" button.
However, for conceptual clarity
it is always better, when
working with manual orders, to create a new or a CLONE
instrument (for manual trading only) and place the manual orders within the
clone. (To create a clone, just use the context
menu).
Limit placing manual orders on an instrument
only for rollover purpose.
There are several advantages in doing so. First of all, we will be able to differenciate manual order from automatic orders and easily keep track of the position. Another advantage is that we do not interfere with the "realized" curve of the automatic instruments.
Example: Adding option games
Options are a great way to cap margin requirements or to capture time decay.
Make sure you come to understand them well to get the most from the bot scalping
activity. G-Bot allows you to easily buy ans sell options and have a complete
view of the corresponding PNL. It will also be easy to scalp options (when appropriate) and
define enqueued orders, for automatic execution at given prices.
Read more hints about the possible use of options on the strategy page.
Example: Manual STOP (or "suspension")
Assume that we are long on EUR 3 contracts and we wish to temporarily stop it.
We set EUR to manual mode. Then we open a "manual CLONE" of it and
place a Sell order for the 3 contracts.
When we want to resume the strategy we simply close the position of the clone
and resume autotrading on the main instrument.
Example: Manual STOP and REVERSE ("trade against the bot")
Assume that we are long on EUR 3 contracts and we wish to temporarily reverse
it. We set EUR to manual mode. Then we open a "manual CLONE" and place a Sell order for the 4 or more contracts.
When we want to resume the strategy we simply close the position of the clone
and resume autotrading on the main instrument.
6. Enqueued orders (limit orders that do not execute immediately, triggered by price or on a PNL condition)
The Order Enqueuer is another powerful feature. This allow you to "schedule" 2 types of orders for later execution. These orders will be automatically executed by the bot under some conditions. For instance, if the price goes below a given threshold, of if the PNL declines of an amount (trailing stop), and so on.
Manual orders: these orders will behave as manual orders after execution.
Injected Strategic Entries (of type CT or T): these orders will behave
like entries injected in the strategy (in automatic mode). In this case they
will be treatead by G-Bot "as if" the position where created by the
current strategy.
It is
also possible to "condition" any order on another order, thus creating a
chain of price triggered executions.
For instance, we could specify: SELL 1 @ 149, but only if a preceding order, say
BUY 1 @ 90 was filled. The chain of orders can be as long as you wish.
7. Trailing at instrument level
Apart the trailing stop definable at order level through the order enqueuer, another form of trailing can be found within the instrument panel. In this case this is the instrument will be closed when a given target PNL is reached, possibly whn a decline is detected (trailing stop).
More on Clone instruments and overlaying
Our approach relies essentially on risk spreading and
diversification. This is attained by two additional means, in addition to the "folio"
concept:
- Multiple instrument instances within the same folio ("clones")
-
Multiple folio instances
that is the capability to start multiple instances of the same or different
folios on the same or multiple accounts, at different times and price levels
The above can be used mainly for 2 purposes:
- Hedging (use a folio or another instance of an instrument to hedge
existing positions)
- Overloading (increase the position of some instruments)
The obvious advantage of this approach is that, through overlaying
multiple delayed instances of the robot (all trading independently), one can
reach any trading frequency and any investment size, without liquidity or
execution problems, and not even being obviosly detected.
In addition, the HF is not attained through a tiny timeframe, but through
overlaying. Which allows all players to have ctually a lower frequency. Clearly, a much
safer approach (which does not even require expensive infrastructure). [It's pretty obvious that allocating large positions on a small timeframe game,
can lead, sooner or later to some catastrophe. Not to mention that the game
would be much less efficient, from the strategic point of view]
Now let's see the "clone" concept and some practical use of it.
A "clone" (instrument) is just another copy of a given instrument, which,
being activated with significant delay after the original (for instance a week
later), will perform entries which are
out of sync
with the original.
When started, a clone (as any instrument), in a contrarian
game can (optionally) be instructed
to "force" a long or short entry. When and how to activate clones is a
discretionary thing, which clearly
affects the immediate results of our trading activity.
A clone is another example of
discretionary intervention. Trading
experience will tell the best way to use these discretionary possibilities. An
example of possible use is to resume scalping action on "stuck" instruments
(after some large price shift). In fact, one thing which might occur are large price shifts with no sign retracement
(for a long period). In this case, we can start a clone to resume the scalping
action on the new price level. This will allow us to scalp while waiting for a
retracement. In fact, after large moves the price will hit a support and
resistance and begin a sideways period, which can be beneficial for scalping.
When cloning an instrument one could
force a directional entry, in the same direction of the original instrument
(to avoid neutralization on retracement).
Now there is an open question if the clone should force a directional entry or
not. For instance, after the large drop,
i may decide to take advantage of the sideways oscillations by starting a clone.
But i may want to force LONG entries only, because otherwise, in case of
reversal i am going to "neutralize" the benefit of the reversal (at least in the
first trip back).
[As an alternative, perhaps, we could leave the clone free to
make any entry, or even force it SHORT, provided that we shut it down (close)
when we see signs of retracement.]
The clone feature should not be abused, but used
parsimoniously and enough delay. In fact, when used too frequently, the clone has more an overloading effect, than
hedging, and somehow an "excessive" (too many or too "close" in time) use would
conflict with with our base principle of diversifying risk, and with the folio
concept. So we should really use them, for "overloading", when we have good
reasons (market insight) to expect the market will have a certain behavior.
8. Day trading only
Some people or institutions wish to hold positions only
during the regular trading hours (RTH) and be flat overnight.
G-Bot can be also used
for this style of trading, but in a much better way that a "day trader"
would.
In fact, it is sufficient to "neutralize" the open
positions (all, or only those of the most feared instruments) with a
manual
stop. Next day, one would issue an opposite manual order and
swich to
autotrading.
Clearly, this method is better than actually closing a position and restarting
from scratch the next day. The difference being that, if one simply closed the
positions each day, that would be equivalent to introducing stops at trade
level, and that would result
for sure in an unprofitable (or at most
zero profit) strategy
(essentially due to "loss of trading information").
In G-Bot, the strategy
"suspension" simply takes the form of a trading gap, which in general
does
not change the nature (profitable) of the strategy. So precious
strategic
information is preserved.
9. Options
Once you gain some experience, it is very convenient and appropriate, while the bot trades, to accompany the scalping activity with options.
G-Bot supports in full this activity, by letting the trader define, buy and sell, and follow visually options too (you can load them in the bot and buy/sell manually istantaneously while looking at bid/ask and spread). You can also use "enqueued orders" which will be executed at given prices, and with given precedences.
Here is an example of FOP definitions:
ES FOP 20111230 1200 P GLOBEX 50 E-mini S&P 500 PUT FOP
EUR FOP 20111104 1.36 C GLOBEX 125000 EUR.USD CALL FOP
(or you might use the "local symbol" notation)
Read here: for more info on option trading:
http://www.theoptionsguide.com/selling-options.aspxtions.aspx
http://www.theoptionsguide.com/short-strangle.aspx