Week 2: Testing the Arb Trader Application in a Live Account

I have continued to test a time-based strategy on AUD/NZD, EUR/CHF and Eurodollars in my live trading account using minimal position sizes as well as testing in Interactive brokers paper trading account.  I did have one glitch in the configuration of my software this week, where one night from 00:00 – 05:30 PDT, the system was not configured to take any positions.  This is typically the system’s busiest time, so there were a number of opportunities that were missed.

As mentioned in a previous post, I have stopped tracking the Eurodollar strategy in the backtests as well as the paper trade account as the results did not in any way line up with what I was seeing in the live account.

I’ve also begun tracking a variation on the EUR/CHF strategy that uses 5-minute bars (the original version uses 60-minute bars).  Results for both variations appear in the tables below.  I will begin testing the AUD/NZD strategy this week using 5-minute bars as well.  Results are below and include commissions.


AUD/NZD

The AUD/NZD strategy had a very good week, picking up nearly 92 ticks (after commissions), on 17 trades.  Results from the backtests continue to be overly optimistic, as judged by the 57.3 ticks picked up in the backtest this week vs. the 18.4 ticks picked up in live trading.  I will likely track the backtests a couple of more weeks and if things are still looking unrealistic, then drop the backtest results from the blog posts.

AUD/NZD week of 3/18/12

Backtest Paper Trading Live Trading
# of Trades 18 19 17
Winning Trades 88.9% 84.2% 88.3%
Avg. Trade (ticks) 6.17 4.95 5.40
Total Profit/Loss (Ticks) 111.10 94.00 91.90

AUD/NZD Total (since 3/11/12)

Backtest Paper Trading Live Trading
# of Trades 33 33 32
Winning Trades 84.8% 81.8% 84.4%
Avg. Trade (ticks) 1.74 0.36 0.58
Total Profit/Loss (Ticks) 57.30 11.80 18.40

EUR/CHF

Results for the EUR/CHF strategy also looked a lot better this week, with the strategy closing 16 trades this week, all for a profit, although over the last 2 weeks the strategy is still down after a few big losses the previous week.  The backtest results here seemed to track quite a bit better (at least for this week), while the overall backtest results are actually lagging behind live trading results.

The variation of this strategy which uses 5 minute bars didn’t begin trading until the week was half over, which would partially explain the huge difference in the number of trades in the backtest vs. in live and paper trading.

EUR/CHF – 60 Minute – week of 3/18/12

Backtest Paper Trading Live Trading
# of Trades 18 14 17
Winning Trades 88.9% 100% 100%
Avg. Trade (ticks) 0.72 1.51 1.23
Total Profit/Loss (Ticks) 13 21.1 20.8

EUR/CHF – 60 Minute – total (since 3/11/12)

Backtest Paper Trading Live Trading
# of Trades 31 28 33
Winning Trades 83.9% 89.3% 90.9%
Avg. Trade (ticks) -1.93 -1.45 -1.02
Total Profit/Loss (Ticks) -59.9 -40.7 -33.6

EUR/CHF – 5 minute – week of 3/18/12

Backtest Paper Trading Live Trading
# of Trades 55 8 9
Winning Trades 96.4% 100% 100%
Avg. Trade (ticks) 0.54 0.54 0.18
Total Profit/Loss (Ticks) 29.9 4.3 1.4

Eurodollars

The Eurodollar version of the strategy had another poor showing this week, losing –8.7 ticks, and is down –12 ticks total in the last 2 weeks.

Eurodollars Live trading

Week of 3/18/12 Total Since 3/11/12
# of Trades 9 20
Winning Trades 50% 60%
Avg. Trade (ticks) -0.97 -0.60
Total Profit/Loss (Ticks) -8.7 -12

For the next week I plan on adding a variation to the AUD/NZD strategy that uses 5-minute bars similar to 5-minute EUR/CHF strategy that I have begun testing this week.  I am also planning on testing an initial version of a pair trading strategy that I have been working on over the last few weeks.

I will also need to begin to look at position sizing and also stop loss orders, as the system at the moment enters with a limit order and exits with a profit-target limit order or a time-based stop, but does not have any stop loss orders.  The next steps will be to determine the maximum adverse excursion for the various instruments, place stop loss orders accordingly and then adjust position sizes based on the stop loss amount.

Twitter: @LimitUpTrading
Twitter: @RobTerp

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