The Ultimate Algorithmic Trading System Toolbox

368 Pages·2016·9.77 MB·english

by  George Pruitt

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TheWileyTradingseriesfeaturesbooksbytraderswhohavesurvivedthemarket’s
ever changing temperament and have prospered—some by reinventing systems,
others by getting back to basics. Whether a novice trader, professional, or
somewhereinbetween,thesebookswillprovidetheadviceandstrategiesneeded
toprospertodayandwellintothefuture.Formoreonthisseries,visitourwebsite
atwww.WileyTrading.com.
Founded in 1807, John Wiley & Sons is the oldest independent publishing
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T U
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Website
Using Today’s Technology to Help
You Become a Better Trader
George Pruitt
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CopyrightC2016byGeorgePruitt.Allrightsreserved.
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LibraryofCongressCataloging-in-PublicationData:
Names:Pruitt,George,1967-author.
Title:Theultimatealgorithmictradingsystemtoolbox+website:usingtoday’s
technologytohelpyoubecomeabettertrader/GeorgePruitt.
Description:Hoboken:Wiley,2016.|Series:Wileytrading|Includesindex.
Identifiers:LCCN2016010889(print)|LCCN2016011196(ebook)|ISBN9781119096573(hardback)|
ISBN9781119262961(pdf)|ISBN9781119262978(epub)
Subjects:LCSH:Electronictradingofsecurities.|Investmentanalysis.|Futures.|BISAC:
BUSINESS&ECONOMICS/Finance.
Classification:LCCHG4515.95.P7882016(print)|LCCHG4515.95(ebook)|
DDC332.640285/4678—dc23
LCrecordavailableathttp://lccn.loc.gov/2016010889
CoverDesign:Wiley
CoverImages:Cagsandrew/Shutterstock
PrintedintheUnitedStatesofAmerica.
10 9 8 7 6 5 4 3 2 1
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CONTENTS
Abouttheauthor ix
IntroductiontotheUltimateAlgorithmicTrading
SystemsToolbox xiii
CHAPTER1 IntroductiontoTrading:Algorithm
v
Development 1
WhatIsanAlgorithm? 1
HowtoGetMyTradingIdeaintoPseudocode 12
Summary 23
CHAPTER2 StochasticsandAveragesandRSI!Oh,My! 25
Oscillators 26
Price-BasedIndicators 58
Summary 75
CHAPTER3 CompleteTradingAlgorithms 77
Trend-TradingBattleRoyale 86
PortfolioComposition 100
Multi-AlgorithmStrategy(MAS) 108
Summary 112
CHAPTER4 IntroductiontoAmiBroker’sAFL 113
QuickStart 113
PriceBarInterface 118
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AFLArrayProgramming 120
Syntax 129
AFLWizard 133
AmiBrokerLoopProgramming 139
Summary 140
CHAPTER5 UsingMicrosoftExceltoBacktestYour
Algorithm 145
VBAFunctionsandSubroutines 147
Data 148
SoftwareStructure 149
ProgrammingEnvironment 154
Summary 163
CHAPTER6 UsingPythontoBacktestYourAlgorithm 167
WhyPython? 167
PythonInstallation 169
PSBInstallation 169
vi
PSBStructure 171
S
T GettingDowntoBusiness 193
N
E
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N
O
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CHAPTER7 AnIntroductiontoEasyLanguage 203
TradeStationIDE 204
Syntax 209
SamplesofEasyLanguage 221
Summary 224
CHAPTER8 GeneticOptimization,WalkForward,and
MonteCarloStartTradeAnalysis 227
UtilizingTradeStationandAmiBroker 227
Computers,Evolution,andProblemSolving 230
Population 231
InitialPopulationSetupUsingVBAExcel 232
TestingFitnessofChromosomesUsingVBAExcel 232
Selection 233
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Reproduction 238
Mutation 240
UsingGeneticAlgorithmsinTradingSystem
Development 243
PreventingOver-Curve-Fitting 247
Walk-ForwardOptimizer:IsItWorththeExtra
WorkandTime? 249
MonteCarloAnalysis 258
StartTradeDrawdown 264
Summary 269
CHAPTER9 AnIntroductiontoPortfolioMaestro,
MoneyManagement,andPortfolioAnalysis 271
FixedFractional 272
PortfolioMaestro 272
Summary 290
APPENDIXA AmiBroker 293
Keywords 293 vii
FlowControlStructures 294 C
O
Functions 295 N
T
E
N
UtilizingExplorationforDebugging 295 T
S
PositionSizinginFuturesMode 298
APPENDIXB ExcelSystemBacktester 301
DataArrays 301
Keywords 302
FunctionsandSubroutines 302
APPENDIXC PythonSystemBacktester 309
DataArraysorLists 309
KeywordsandIdentifiers 310
Classes 310
IndicatorClassesandFunctions 315
Python-SpecificKeywords 320
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APPENDIXD TradeStationandEasyLanguage 323
ImportingELDfilefromBookWebsite 323
KeywordsandFunctions 324
SampleAlgorithmCodes 325
APPENDIXE 335
AbouttheCompanionWebsite 337
Index 339
viii
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ABOUT THE AUTHOR
ItwasMarchof1989asIdrovemybeat-upDodgeupHillsideRd.inHendersonville,
NC. In an attempt to pay for my last semesters of college I was answering a
classifiedadthatwaslookingtohireacomputerprogrammer.AsIdroveupthethin
drive I passed several houses and then through a gate attached to two large stone
pillars. I stopped the car and looked down at the ad again to make sure I was at
ix
the right place. I proceeded down the country lane and the view opened up into a
largemeadow.Attheendofthelanewasacirculardriveandlargefarmhouse.As
I circled and went back down the road I thought to myself I must have the wrong
address or directions. So I followed the small road back down the main highway
andthentoasmallconvenientstore.OncethereIaskedmyselfagainwhattypeof
businesswasthisFuturesTruthandifIshouldcallandgetdirectionsorjustsimply
forget about it. Curiosity and the need for money were too much so I used the
store’spayphoneandcalledthenumberonceagain.
‘‘Hello—FuturesTruth,mayIhelpyou?’’alady’svoiceanswered.
‘‘Yes, this is George Pruitt and I made an appointment for an interview but I
can’tseemtofindyouroffice.’’
‘‘DoyoudrivearedDodge?’’sheasked.
‘‘YesIdo.Howdidyouknow?’’
‘‘We saw you drive right by the office. When you come through the two stone
pillarsturnimmediatelytotheleft.Don’tgoallthewaydownthedrive—that’sthe
owner’shouse.’’
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So I follow the directions and find myself in front of a small house. I knock on
the door and John Fisher opens and invites me in. We go through the normal Q
and A for a job interview and he finally asks if Iknew FORTRAN. My first college
programmingclasswasFORTRANsoIconfidentlyanswered,‘‘Sure!’’
He then asked me if I knew anything about the Futures market. I vaguely
remembered the term from one of my economics classes and of course from the
Eddie Murphy movie and answer him with the question, ‘‘You mean like Trading
PlaceswithEddieMurphy?’’
JohnFishersaid‘‘Sortoflikethat—yes.’’
He went on to explain how Futures Truth tried to determine market direction
in the most widely traded futures contracts by using trading systems. The trading
systemswereprogrammedinFORTRANandtheyneededhelpwiththeprogram-
ming. Inadditiontotrading theyalsopublishedanewsletterinwhichtheytracked
publiclyofferedtradingsystems.
Iasked,‘‘Dopeoplereallybuytheseprograms?’’
JohnFishersaidyesandbythattimeanoldergentlemenwalkedintotheofficeand
stated that he had spent thousands of dollars on these programs and was ultimately
ripped off. John Hill stated this was the main reason he started Futures Truth. He
wantedtobringtruthtothetradingsystemindustry.BothJohnstoldmethatmost
traders couldn’t afford to validate the trading systems because of the cost of the
x computer equipment, data, and software. John Fisher pointed to the computer he
wasworkingonandasked,‘‘HowmuchdoyouthinkthisMacintoshIIcost?’’
R
O Iansweredhim,‘‘IamnotthatfamiliarwithMacsbutIknowtheyaren’tcheap.’’
H
T
U My mouth fell open when he said ‘‘$4,000 and we have three of them.’’
A
E Rememberthiswaswaybackin1989whencomputerswerenotcheap.
H
T
I was thinking to myself that they got ripped off because they could have got
T
U
O a much cheaper and better computer with the IBM PS/2. And what was up with
B
A using FORTRAN? Did they not know ‘‘C’’ was the new programming language
of the 1990s? John Fisher chose the Apple Macintosh because of its easy-to-use
graphical user interface (GUI) and FORTRAN because many traders and hobbyist
programmershadknowledgeofthislanguage.
John Fisher also said that he and John Hill had developed what they considered
the best testing platform, ‘‘Excalibur.’’ This platform could load decades of daily
and intraday data and test any trading idea that could be defined in an algorithmic
form. He also said the only thing that was missing was a charting application and
thatwaswheretheyalsoneededhelp.
IexplainedthatIwouldbewrappingupmydegreeaftersummerandbothJohns
agreed that I could work part time in the evening until I graduated and then we
couldgofromthere.