article

Trading gets smarter

Posted: 10 November 2010 | FX-MM | No comments yet

In the last of three articles examining next generation trading techniques, Frances Maguire takes an in-depth look at the trend towards ‘auto-execution’ that is overtaking that of automated trading.

The development of Mirror Trading has heralded a next generation of trading technology that enables traders to benefit from the best of both worlds – human intelligence and automation. In Mirror Trading, some strategies are manual and some are automatic; however, all of the strategies are managed and controlled by humans. This means that the algorithm-based strategies are constantly updated according to the market.

In the last of three articles examining next generation trading techniques, Frances Maguire takes an in-depth look at the trend towards ‘auto-execution’ that is overtaking that of automated trading.The development of Mirror Trading has heralded a next generation of trading technology that enables traders to benefit from the best of both worlds – human intelligence and automation. In Mirror Trading, some strategies are manual and some are automatic; however, all of the strategies are managed and controlled by humans. This means that the algorithm-based strategies are constantly updated according to the market.

In the last of three articles examining next generation trading techniques, Frances Maguire takes an in-depth look at the trend towards ‘auto-execution’ that is overtaking that of automated trading.

The development of Mirror Trading has heralded a next generation of trading technology that enables traders to benefit from the best of both worlds – human intelligence and automation. In Mirror Trading, some strategies are manual and some are automatic; however, all of the strategies are managed and controlled by humans. This means that the algorithm-based strategies are constantly updated according to the market.

By mirroring the trading skills of successful traders to select and define trading strategies, rather than choosing an algorithm, and then benefiting from the speed and efficiency of automation to execute those trading strategies, Greg Hay, Vice President for Business Development and co-founder at Tradency, believes that Mirror Trading will completely redefine the use of automation in FX trading for years to come.

Hay says that Mirror Trading uses signals from other traders and those signals are mirrored exactly in the user’s account. “The signals coming from the third party may be manually traded signals, as opposed to signals from a third party black box system. Mirror Trading is copying manual trading strategies, whereas automated trading will use an algorithm.” The signals that are being executed on the client’s account may be manually created signals from the strategy provider. So the user has automated execution of signals from a manual signal provider or an automated provider. This is the key distinction between mirror trading and automated trading, which is essentially an algorithmic trading program that opens and closes trades based on mathematical parameters. Mirror Trading does not echo automated trading strategies, but manual traders around the world. There are also more than 2000 different strategies on the Tradency platform, each with their own characteristics. Two of the most significant features that Hay says have been added to the new version of Mirror Trading are the T-Score, which is a ranking mechanism of all the different strategies, and the smart filter, which helps filter the strategies and recognise the relevant strategies according to the traders’ preferences.

Just as trading technology has become more sophisticated, so too have the scoring and filtering mechanisms available and these features can quickly cut through the complexity of wider criteria to identify the right strategies.

He says: “One of the biggest hurdles that traders face is how to establish which strategy is the best one for them. The smart filter identifies which strategy is most suitable for the profile of the trader keeping in mind the account balance and the amount of risk that the trader wants to take on that particular account.” The smart filter can whittle down the number of strategies from which to choose based upon the criteria and profile of the trader until a selection of relevant strategies is produced.

The scoring mechanism that Tradency has developed combines the critical elements of metric performance to provide a single ‘Tscore’ to allow traders to identify the best currently performing strategy. Says Hay: “It also ensures strategy developers are using good risk-reward trading styles in order to stand out from the crowd and achieve a high ranking status.

Furthermore, the Tradency platform contains only real trading history – every closed trade is recorded – so traders see real trading results, unlike automated trading systems, which contain the results of backtesting. These are what-if scenarios and are not as reliable a guide for traders as they have not been recorded in a live trading scenario. While back-testing of trading systems enables a trader to start trading on a system live, it can only really be considered as an illustration of the system’s performance. Hay says: “There is no substitute for real time performance tracking. The history contained on the Tradency platform is real, reliable and authentic, and not something that has been generated by a signal provider.”

According to Hay, traders are increasingly looking to Tradency to use Mirror Trading for portfolio balancing or diversification by mixing day trading with longer term punts, and blending strategies to make their final strategy more unique. He says: “If traders are successful using automated trading, by using Mirror Trading, they can use someone else’s strategy to diversify their own strategy. If, for example, they like scalping, and have a successful scalping strategy, which they developed, they can use Mirror Trading to get signals from the medium-term or long-term. They can use Tradency signals to complement their own style of trading, as well as for pure asset diversification by allocating funds to Mirror Trading.”

Mirror Trading, he adds, makes the ability to diversify strategies much easier, not only because T-Score helps find the right strategy, but also because strategies can be added or removed easily. In addition, flexibility and giving the user full control of the trading portfolio is central to the platform. While the strategies will open and close trades automatically, according to the signals, the trader can modify, close, change the stop loss or take profits at any point.

Another important aspect of FX trading is the ability to be able to react to changing market conditions and volatility spikes – something that can be difficult to do quickly with automated strategies without the programming skills needed to rewrite the code inside the black box. With Mirror Trading, Hay says that traders can either tweak the strategy to suit the market conditions at the time, or switch to a different strategy quickly and easily, even trading with more than one strategy to suit the various current market conditions.

The introduction of automated trading strategies and the widespread availability of algorithms may have started a boom in retail FX trading, but as the market matures, so too will the demand for more sophisticated trading techniques and strategies. The proliferation of strategies has meant that there is also a high number of poor algorithms available and sooner or later, the codes for the more successful ones will become a sought after. Mirror Trading, it seems, is second-guessing this trend.

Related topics

Related organisations

Can you help us better understand the challenges you face in sending accurate payments?Complete our NEW survey
+

Send this to a friend