Live automated trading of a time-based mean-reversion strategy

Last week I wrote that I had completed testing of my Arb Trader software in Interactive Brokers “Paper “Trading” account, and that I would begin testing in a live account this week.  Live testing worked out well this week and I have learned a couple of things that I will need to incorporate into my software.  The biggest issue I ran into was that IB rejects all currency orders destined for IdealPro from 14:00 PDT – 14:10 PDT.  The strategy that I am currently trading either submits orders every hour, on the hour or modifies an existing order at the top of the hour.  However, the order submitted at 14:00 is promptly rejected by IB.  The software will need to compensate for this by holding the order for 10 minutes before submitting it.

As I mentioned the previous week, the strategy will be trading the AUD/NZD and EUR/CHF currency crossrates as well as Eurodollar futures.

Results for the week ending 3/17/12.  Each of the instrument results in backtests, paper trading, and live trading appear in the tables below.  All results illustrated include commission and slippage.

AUD/NZD

Backtest Paper Trading Live Trading.
# of Trades 15 14 15
Winning Trades 80% 78.7% 80%
Avg Trade (ticks) -3.6 -5.9 -4.9
Total Profit/Loss (Ticks) -53.8 -82.2 -73.5

EUR/CHF

Backtest Paper Trading Live Trading.
# of Trades 13 14 16
Winning Trades 76.9% 78.6% 81.2%
Avg Trade (ticks) -5.6 -4.4 -3.4
Total Profit/Loss (Ticks) -72.9 -61.8 -54.4

 

Eurodollars

Backtest Paper Trading Live Trading.
# of Trades 37 26 11
Winning Trades 94.6% 84.6% 63.6%
Avg Trade (ticks) 0.7 0.4 -0.3
Total Profit/Loss (Ticks) 25.4 10.2 -3.3

 

As can be seen, the strategy had a rough week for AUD/NZD and EUR/CHF, even by the backtest standards, which in the past have proven to be overly optimistic compared to results in both the paper-trading and live accounts.  The other interesting thing to note is that the strategy performed slightly better in live trading than the paper trading account for the 2 currencies.

The Eurodollar results however are a different story.  Both the backtest and paper-trading results prove to be much better than the live account.  Probably the biggest reason for this is that the strategy will tend to sit on both the bid and the ask waiting to be filled.  Since Eurodollare futures tend to move glacially slow, there is no decent way to simulate when a bid or offer the strategy has placed may be hit, and as such the backtests and paper account are a bit over zealous on providing fills for the strategy.

Due to the unrealistic fills, I will discontinue tracking Eurodollar futures in backtests as well as discontinue trading it in the paper-trade account, since the results provided by both methods are nowhere close to the actual results I’m seeing.

I will be going live again with the system beginning Sunday afternoon and will provide a new update at the end of the week with the strategy results.

 

twitter: @LimitUpTrading
twitter: @RobTerp

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